ITPEC FE Morning April 2023 Question 77

Ranking products by sales or gross profit and grouping them by cumulative share — that is ABC analysis, which focuses effort on the few items that matter most.

Products are sorted in descending order of sales or gross profit, and the cumulative ratio is plotted as a Pareto chart. Items up to about 70–80% of the cumulative total form group A, those up to about 90–95% form group B, and the rest form group C. Group A is usually a small number of items that brings in most of the revenue, so it gets priority in stocking, promotion and control.

Answer (b)

Why not others:

• •(a) — dividing a region into grid sections and analysing each with population and purchasing-power data is area marketing by grid (mesh) analysis
• •(c) — classifying survey data by factor and aggregating it is cross-tabulation
• •(d) — surveying the same respondents repeatedly to track changes is a panel survey

Key rule: ABC analysis is the Pareto principle applied to management: rank, accumulate, cut into A, B and C, and concentrate on A.

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