Answered

Which of the following statements about ABC analysis is FALSE? A. ABC analysis is based on the presumption that all items must be tightly controlled to produce important cost savings. B. ABC analysis is based on the presumption that controlling the few most important items produces the vast majority of inventory savings. C. In ABC analysis, "A" items should have tighter physical inventory control than "B" or "C" items have. D. In ABC analysis, forecasting methods for "C" items may be less sophisticated than for "A" items. E. Criteria other than annual dollar volume, such as high holding cost or delivery problems, can determine item classification in ABC analysis.

Answer :

Answer:

The correct answer is letter "A": ABC analysis is based on the presumption that all items must be tightly controlled to produce important cost savings.

Explanation:

ABC analysis is a method to value inventory in a company. "A" items are highly valuable, "B" items have an intermediate value, while "C" items are goods with less importance. The ABC analysis is based on the Pareto principle that 80% of the consumption relies on 20% of valuable items. In such a scenario:

  • "A" items (20% value): provide 80% of consumption
  • "B" items (30% value): provide 15% of consumption
  • "C" items (50% value): provide 5% of consumption

Therefore, ABC analysis has nothing to do with goods costing in an entity.

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