kept the Very ntion is paid estimates scheduling of deliveries, prompt receipt, immediate inspection and rapid flow through the factory 3. It provides a more sound cost perspective to the management and enables them to assign priorities in cost reduction programme 4. It avoids wastage of time and energy in making improvements in areas that yield only marginal benefits (class 'C' items) 5. It is used to control raw material, components and work-in-progress inventories. Limitations of ABC Analysis 1. It ignores all aspects other than the annual usage value For instance, factors such as market conditions, competitors, possible scarcities, lead time variations, seasonal variations, criticality of the item, etc., are not taken into consideration in carrying out the analysis. 2. If ABC analysis is not updated periodically, the real purpose of control may be defeated. For example, "C" item like diesel oil in a firm, will become most high value item during power crisis 3. Large stocks of 'C' items may cause problems of storage space limitations and higher losses due to deterioration, obsolescence and pilferage. 4. When large number and varieties of inventories are involved, it becomes very difficult to categorise them into just three categories EXAMPLE 12.12-1 The following information is known about a group of items. Classify the items as A, B and C TABLE 12.7 Item No Annual consumption in pieces Unit price in parte 501 30.000 10 502 2,80,000 15 503 3,000 504 1.10,000 5 505 4,000 5 506 2.20.000 507 15.000 5 508 80,000 5 509 60,000 15 8,000 (CA. (Final) May, 1980) b34 10 10 510 10