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Exam L4M7 Topic 5 Question 31 Discussion

Actual exam question for CIPS's L4M7 exam
Question #: 31
Topic #: 5
When using ABC analysis to classify inventory, which factors must be considered?
1. Demand uncertainty of each item
2. Cumulative percentage of items
3. Cumulative percentage usage value of items
4. Overall inventory turnover

Suggested Answer: C Vote an answer

ABC analysis is applied to stock and its management. It is based loosely on the Pareto principles, better known as 80/20 rule. Pareto principle is the theory that 80% of outcome results from 20% of inputs. For example, 80% of sales are to the top 20% of customers; 80% of spend on inventory is accounted for by the top
20% of stock items.
The ABC concept is based on Pareto's law. The following steps are carried out for the ABC analy-sis.
- Step 1: Compute the annual usage value for every item in the sample by multiplying the annual requirements by the cost per unit.
- Step 2: Arrange the items in descending order of the usage value calculated above.
- Step 3: Make a cumulative total of the number of items and the usage value.
- Step 4: Convert the cumulative total of the number of items and usage values into a percentage of their grand totals.
- Step 5: Draw a graph connecting cumulative % items and cumulative % usage value. The graph is divided approximately into three segments, where the curve sharply changes its shape. This indicates the three segments A, B and C.
LO 2, AC 2.1

by Belle at Jun 07, 2026, 07:01 AM

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Here are all the actual test exam dumps for IT exams. Most people prepare for the actual exams with our test dumps to pass their exams. So it's critical to choose and actual test pdf to succeed.

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