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An inventory classification scheme that ranks items based on past (or projected) annual usage times cost or price, with A items accounting for the top 10-20% in terms of number of items and 60-70% of dollar volume, B items the next 20-25% of items and 20-30% of dollar volume, and C items as the bottom 60-70% of items and only 15-30% of the dollar volume. A Class D is sometimes used for obsolete or non-moving items. ABC categories are often used in specifying the amount of attention and control paid to specific items, (with the tightest control over A items), in exception reporting and in selecting items for periodic inventory cycle counts (A items are counted the most frequently). See also 80/20 rule; Parato’s Law.
Activity Based Costing (ABC)
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