CPIM Practice Exam

What does ABC classification help to prioritize in inventory management?

1. Items based on cost

2. Items classified by varying demand

3. Items in increasing order of annual dollar volume

4. Items in decreasing order of annual dollar volume

The correct answer is: Items in decreasing order of annual dollar volume

ABC classification is a method used in inventory management to categorize items based on their importance, which is often determined by the annual dollar volume they represent. In this system, items are typically categorized into three groups: 1. **A items**: These are high-value items that account for a significant portion of the inventory's overall value, but they may not comprise a large percentage of the total items in inventory. 2. **B items**: These represent moderate value items and serve as a middle category. 3. **C items**: These are low-value items that make up a large percentage of the total items but represent a small portion of the overall inventory value. The correct answer emphasizes that the classification focuses on items in decreasing order of annual dollar volume. By prioritizing items that contribute the most to the dollar value of the inventory, businesses can manage resources more effectively. This allows for more precise decision-making regarding stock levels, ordering frequency, and inventory control measures. For example, it allows companies to apply more stringent inventory controls and oversight on high-value 'A' items while maintaining a more lenient approach on lower-value 'C' items. In summary, ABC classification is essential for identifying which items require more strategic attention and resources based on their