Process of ABC Analysis
• Classification: On the origin of expected use, the items of inventory are categorized according to their categories and per unit Price of each item is found out.
• Ascertainment of Total Cost: The total cost is computed by multiplying the expected units to be used through per unit cost.
• Rank Determination: Cost-wise rank is found out for each item of inventory. First rank is allocated to the item along with the highest total cost.
• Computation of Ratio or Percentage: Two ratios/percentages are computed
(i) Percentage of number of units of all items to total units of all items.
(ii) Total cost of all items to the total cost of all items.
• Determination of ABC Category: ABC categories are formed through combining the items on the origin of their relative values.