The Purpose of Classifying Items According to Their Value in ABC

question 6

True/False

The purpose of classifying items according to their value in ABC analysis is to establish the proper degree of control over each inventory item.

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Definitions:

Variable Expenses

Costs that fluctuate with production or sales volume, such as materials, utilities, and commissions.

Fixed Expenses

are costs that do not change with the volume of production or sales, such as rent and salaries.

Sales

The transactions between a company and its customers where goods or services are provided in exchange for money.

Margin of Safety

The difference between actual sales and breakeven sales, indicating how much sales can decrease before a business incurs a loss.