Question

In ABC analysis, A-type inventory represents
1. High value, High volume
2. High value, Low volume
3. Low value, Low volume
4. Low value, High volume

Answer 1

Correct Answer - Option 2 : High value, Low volume

Explanation:

• The inventory comprises of large number of items.
• All items are not of equal importance.
• The firm, therefore, should pay more attention and care to those items whose usage value is high and less attention to those whose usage value is low.

There are different types of selective inventory control:

ABC analysis(Always Better Control)	Inventory items are classified based on their annual usage value in monetary terms.	Class A - item: 10 % of the item accounts 75% costs. Class B - item: 20% of the item accounts 15% costs. Class C - item: 70% of the item accounts 10% costs.
VED Analysis (Vital, Essential, Desirable)	Inventory items are classified on the basis of their criticality i.e. according to the cost of incurring a stock out	V-Vital: Without which the production process would come to standstill E-Essential: Their non-availability will adversely affect the efficiency of the production system. It should be given second priority. D-Desirable: Without which the process is unaffected but is good if they are available for better efficiency.
SDE Analysis (Scarce, Difficult, Easily Available)	This type of analysis is useful in the study of those items which are scarce in availability	S-Scarce: Imported items which are generally in short supply D-Difficult: These are available in market but not always traceable or immediately supplied E-Easily: Easily available in the market
HML Analysis (High, Medium, Low Cost)	This type of analysis is similar to ABC analysis, except that cost per item is taken.	H-Highest: Items whose unit cost is very high, or maximum are given top priority M-Medium: Items whose unit cost is of medium value L-Low: Items whose unit cost is low
FSND Analysis (Fast, Slow, Non-moving, Dead items)	Inventory items are classified in the descending order of their usage (Consumption rate/ movement value).	F-Fast moving items: That are consumed in short span of time N-Normal moving items: That are consumed over a period of one year S-Slow moving items: These items are not frequently issued and consumed over a period of two years or more. D-Dead items: Consumption of such items are almost nil. It can also be taken as obsolete items