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ABC analysis & Ved analysis (Accounts)

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This query is : Resolved



( Author )
20 April 2011

Hi,

Please explain what is ABC analysis & Ved analysis.



CMA. CS. Sanjay Gupta

( Expert )
20 April 2011

For in-depth info on ABC analysis see below link....


http://www.accountingformanagement.com/activity_based.htm


CMA. CS. Sanjay Gupta

( Expert )
20 April 2011

‘V’ stands for vital, ‘E’ for essential, ‘D’ for desirable. This classification is usually applied for spare parts to be stocked for maintenance of machines and equipments based on the criticality of the spare parts. The stocking policy is based on the criticality of the items. The vital spare parts are known as capital or insurance spares. The inventory policy is to keep at least one number of the vital spare irrespective of the long lead-time required for procurement. Essential spare parts are those whose non-availability may not adversely affect production. Such spare parts may be available from many sources within the country and the procurement lead time many not be long. Hence, a low inventory of essential spare parts is held. The desirable spare parts are those, which, if not available, can be manufactured by the maintenance department or may be procured from local suppliers and hence no stock is held usually.


Harsh Karan Singh

( Expert )
21 April 2011

In a nutshell, ABC analysis of inventory is based on the value and usage analysis of the stock. It is basically, a derivative of the Pareto Rule (i.e., the 80-20 principle). A large volume of the inventory which is not of a very high value is classified into B&C categories, whereas, a small volume of the inventory which constitutes a significant value of the inventory is classified as A category.

Please read the nexty post for VED analysis


Harsh Karan Singh

( Expert )
21 April 2011

On the other hand, VED analysis, per the modern practices it is actually VEDI. Further, it is not an analysis but both of them, ABC and VED are a means of classifying inventory. ABC classification helps in classifying inventory in terms of value and therefore the precautions to be exercised in terms of their storage and maintenance.

VEDI classification system on the other hand, segregates the entire inventory set into Vital, Essential, Desirable and Insurance Spares.

Insurance Spares are those spares that form an essential part of their machinery and their cost is capitalised along wit hthe machinery. They are insured along with the insurance of the machinery and hence the name Insurance Spares.

Vital stores are those who are vital to the production and/ or machine's functioning. Hence, their stock is required in order to maintain continuity of production. Essential store items are those, absence of which will not halt the production altogether but can impede the performance, Desirable items are those which are good if kept in stock but lack of which will not affect normal operations.


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