Which of the Following Statements About ABC Analysis Is FALSE

question 207

Multiple Choice

Which of the following statements about ABC analysis is FALSE?

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

---

Definitions:

Operating Leverage

A gauge of the relationship between sales growth and the growth of operational earnings, showing the mix of fixed and variable costs within a business.

Financial Leverage

The use of borrowed funds to finance investments, aiming to increase the potential return to equity holders.

Business Risk

The exposure a company or investor faces from uncertainties that may impact its operations and profitability.

Financial Risk

The possibility of losing money or financial assets due to factors affecting financial markets, investment decisions, or company performance.