ABC Analysis Is Based Upon the Principle That

question 114

Multiple Choice

ABC analysis is based upon the principle that:

• A) all items in inventory must be monitored very closely.
• B) there are usually a few critical items, and many items that are less critical.
• C) an item is critical if its usage is high.
• D) more time should be spent on class "C" items because there are many more of them.
• E) as with grade distributions in many MBA courses, there should be more medium-level "B" items than either "A" or "C" items.

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Definitions:

Underapplied

Refers to a situation where the allocated manufacturing overhead is less than the actual overhead incurred.

Manufacturing Overhead

All the indirect costs associated with producing a product, excluding the direct costs of labor and materials.

Electrical Motor

A device that converts electrical energy into mechanical energy, commonly used in various applications to drive machinery.

Fixed Manufacturing Overhead

This refers to the consistent costs associated with the manufacturing process that do not vary with the level of production, such as salaries of managers and depreciation of factory equipment.