Could you please discuss the main advantages and disadvantages of ABC method of inventory control system? Discuss whether the potential benefits—and drawbacks—of ABC system
In approximately 270 words for each statement response, address the following issues/questions:
Statement 1
There is no doubt that the proper management of inventories is an important issue. Activity-based costing (ABC) is a costing methodology that identifies activities in an organization and assigns the cost of each activity. In other words, ABC system explores the relationship between costs, activities and products. Thus, ABC strategies lead to profitable decision making, along with low inventories. The cost of controlling inventories, however, must be weighed against the potential benefits. It may be possible to have different levels of control according to the nature of the inventories held. The ABC system of inventories control is based on the idea of selective levels of control.
Could you please discuss the main advantages and disadvantages of ABC method of inventory control system?
Discuss whether the potential benefits—and drawbacks—of ABC system are limited to large businesses or whether they have wider applications for other organisations.
An important aspect of managing inventory is to have a way to classify it based on its importance. What are the main difficulties of inventory classification following their importance? Why?
Statement 2
There is no doubt that the use decision models to help manage inventories. The Economic Order Quantity (EOQ) model is concerned with determining the quantity of a particular inventories item that should be ordered each time. In other words, the EOQ model considers the trade-off between ordering cost and storage cost in choosing the quantity to use in replenishing item inventories. However, the EOQ model can be applied to any quantity decision that is repeated over time, where there is a trade-off between a fixed cost and a variable cost associated with that decision, and where the choice is based on minimizing the cost/time associated with that decision.
Could you please discuss how the EOQ model application involves the management of cash for a business? How?
Please share your views.
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