CIM ABC Analysis & Classification 4 — Questions and Answers
Question 1: ABC analysis is most closely related to which broader inventory management principle?
- Just-in-Time manufacturing
- Selective inventory control based on Pareto analysis (Correct answer)
- FIFO rotation policy
- Vendor-managed inventory
Correct answer: Selective inventory control based on Pareto analysis
ABC analysis is a direct application of Pareto analysis (the 80/20 rule) to selective inventory control.
Question 2: Which ordering policy is most appropriate for Class A items in ABC analysis?
- Large batch orders placed infrequently
- Frequent orders in smaller quantities with tight monitoring (Correct answer)
- Order only when stockouts occur
- Annual blanket purchase orders with no review
Correct answer: Frequent orders in smaller quantities with tight monitoring
Class A items benefit from frequent, smaller orders and continuous monitoring to minimize capital tied up and reduce stockout risk.
Question 3: A retail chain wants to optimize shelf space allocation. How can ABC analysis assist?
- By ranking products by color and size
- By identifying high-value items that deserve prime shelf positioning (Correct answer)
- By calculating the optimal reorder point for each SKU
- By determining supplier lead times
Correct answer: By identifying high-value items that deserve prime shelf positioning
ABC analysis identifies the highest-value (Class A) products that should receive prime, easily accessible shelf locations to maximize sales.
Question 4: An inventory analyst notices that ABC class boundaries shifted significantly after a product line was discontinued. What should she do?
- Keep existing classifications to maintain consistency
- Recalculate annual dollar usage and reclassify all items (Correct answer)
- Reclassify only the discontinued items as Class C
- Ignore the shift until the next scheduled 5-year review
Correct answer: Recalculate annual dollar usage and reclassify all items
Significant changes in the product portfolio require a full recalculation and reclassification to ensure ABC categories remain meaningful.
Question 5: Which statement about Class B items in ABC analysis is most accurate?
- They require the same level of control as Class A items
- They represent a middle tier and are managed with moderate controls (Correct answer)
- They account for the majority of inventory value
- They should be immediately outsourced to third-party logistics providers
Correct answer: They represent a middle tier and are managed with moderate controls
Class B items occupy a middle ground, requiring moderate management attention and standard control procedures.
Question 6: A company classifies 10% of SKUs as Class A (70% of value), 20% as Class B (20% of value), and 70% as Class C (10% of value). The total inventory value is $1M. What is the Class B inventory value?
- $100,000
- $200,000 (Correct answer)
- $700,000
- $70,000
Correct answer: $200,000
Class B represents 20% of total inventory value: 20% × $1,000,000 = $200,000.
Question 7: In the context of ABC analysis, 'annual dollar usage' for an item with a unit cost of $50 and annual demand of 400 units equals:
- $450
- $20,000 (Correct answer)
- $8
- $2,000
Correct answer: $20,000
Annual dollar usage = unit cost × annual demand = $50 × 400 = $20,000.
CIM ABC Analysis & Classification 4
ABC analysis is most closely related to which broader inventory management principle?