Question

The details of spare parts stocked in XYZ Motors are given below with the unit cost and the annual consumption in Omani Rials.

Sl. No	Item code No	Annual consumption in Pieces	Unit price in Rials
1	501	30,000	10
2	502	2,80,000	15
3	503	3,000	10
4	504	1,10,000	05
5	505	4,000	05
6	506	2,20,000	10
7	507	15,000	05
8	508	80,000	05
9	509	60,000	15
10	510	8,000	10

A. Describe the procedure of ABC analysis

B. Evaluate how the parts can be classified into A Class, B Class and C Class using ABC analysis with the help of neat diagram/graph.

             

Hint: A:70% B: 20% C: 10%

Answer 1

A)

ABC analysis is a method for classifying inventory items that will show the substantial impact on overall spending of an organization.

A category of items are very important for an organization because it contain high spend value. Normally A items are those items for which an organization spends close to 80 or even 90% of its money.

B category are those that an organization spends about 10% to 15% of its money. These are not that high in priority but still may need to be watchful.

C category are those where spend is very low. Usually companies will have around 75% to 80% of suppliers in this category.

B)

Below is table presenting the ABC categorization -

Item code No	Annual consumption in Pieces	% of totall consumption	Cumulative Percentage	Unit price in Rials	Total Amount	% of total amount involved	Cumulative %	Category (A,B,C)
502	2,80,000	34.57%	34.57%	15	4200000	47.97%	47.97%	A
506	2,20,000	27.16%	61.73%	10	2200000	25.13%	73.10%	A
509	60,000	7.41%	69.14%	15	900000	10.28%	83.38%	B
504	1,10,000	13.58%	82.72%	5	550000	6.28%	89.66%	B
508	80,000	9.88%	92.59%	5	400000	4.57%	94.23%	C
501	30,000	3.70%	96.30%	10	300000	3.43%	97.66%	C
510	8,000	0.99%	97.28%	10	80000	0.91%	98.57%	C
507	15,000	1.85%	99.14%	5	75000	0.86%	99.43%	C
503	3,000	0.37%	99.51%	10	30000	0.34%	99.77%	C
505	4,000	0.49%	100.00%	5	20000	0.23%	100.00%	C

Note -Table has been presented though diagram can also be made with this.

                    -------------------------------For doubt reach out through comment section- :)---------------------------------