The ABC Classification method separates inventory items into three categories based on their value and usage. Class A items comprise the highest value but lowest quantity, making up 15% of total inventory items but 71% of total value. Class B items are next in value and quantity, representing 25% of total items and 16.5% of total value. Class C items have the lowest per-item value but highest quantity, comprising 60% of total items but only 12.5% of total value. This classification determines the appropriate level of control and monitoring applied to each inventory item.

1. The ABC ClassificationBOBADILLA.ZATARAIN

2. What is ABC Classification ?ABC Classification is ..a method for classifying inventory according to several criteria including its dollar value to the firm.separates the most significant items from the less important. used to determine the degree and level of control used.

3. Typically, thousands of independent demand items are held in inventory by the companyBUTA small percentage is of such a high dollar value to warrant close inventory control.

4. Class A5 – 15 % of units

5. 70 – 80 % of value Class B30 % of units

6. 15 % of valueClass C50 – 60 % of units

7. 5 – 10 % of valueCopyright 2006 John Wiley & Sons, Inc.12-4Classification of inventory items

8. THE HIGHER THE VALUE OF THE INVENTORY, THE TIGHTER THE CONTROL.

9. Procedure of ABC classificationThe procedure of the ABC inventory control classification is summarized in the following steps:Determine the annual usage for each item.Multiply the annual usage of each item by its cost to get its total value.

10. List the items according to their annual money usage.

11. Calculate the percent of total value (Value/Total Value x100)

12. Calculate the percent of total quantity (Annual usage/Total Annual Usage x 100)

13. Compute the cumulative percentage of items.Examine the annual usage distribution and group the items into A, B, and C groups based on percentage of annual usage..

14. ABC Classification: ExampleThe maintenance department for a small manufacturing firm has responsibility for maintaining an inventory of spare parts for the machinery it services. The parts inventory, unit cost and annual usage are as follows: