CPIM Practice Exam

What is an accurate statement about ABC classification?

1. About 20 percent of the items will account for about 80 percent of the total value.

2. A items should have the most safety stock.

3. A general rule is to have plenty of everything in inventory.

4. C items account for about 80 percent of the total value.

The correct answer is: About 20 percent of the items will account for about 80 percent of the total value.

The statement that about 20 percent of the items will account for about 80 percent of the total value reflects the essence of the ABC classification method, which is a widely used inventory management technique. This classification splits inventory into three categories based on importance and value: 'A' items are high-value products with a small quantity, 'B' items are medium-value products, and 'C' items are low-value products with a larger quantity. The principle behind this classification, often referred to as the Pareto Principle or the 80/20 rule, demonstrates that a small percentage of items (20%) typically represents a large portion of the overall inventory value (80%). Recognizing that just a few high-value items significantly contribute to the overall inventory value allows businesses to focus their control efforts more effectively. By managing and monitoring these critical 'A' items closely, organizations can optimize their inventory levels, reduce carrying costs, and improve service levels. Options that suggest different proportions or management strategies, such as having most safety stock for 'A' items, present a misunderstanding of the classification's principles. While it can be beneficial to maintain adequate safety stock for high-value items, the 80/20 relationship encapsulated in the first statement correctly identifies the fundamental purpose