Advantages of using ABC analysis
1. Better control on expensive items on which large investment is required.
2. Cycle counting, which is an indicator of stock replenishment can be effectively used after completing the grouping.
3. Ensures reduction in storage expenses.
Disadvantage of the technique
1. Method can’t be employed where products can’t be standardized.
2. Classification is done purely on the basis of monetary value and other factors are ignored.
3. A good system to codify the products should be used in order to perform the ABC analysis.
Forecasting is the use of historic data to determine the direction of future trends. Businesses utilize forecasting to determine how to allocate their budgets or plan for anticipated expenses for an upcoming period of time. This is typically based on the projected demand for the goods and services they offer.
Is the income extent at which the total income is equal to the complete cost that is, at this factor the establishment does no longer make an earnings or loss and consequently any stage of manufacturing under the break-even factor of the institution with the loss of increasing distance from this point. On the different hand, any degree of manufacturing that exceeds the break-even point is finished by the establishment with make bigger in distance. That is, if total revenue covered the total fees except leaving a surplus to profit, this level of undertaking is known as a break-even point. Is the point at which price or expenditure and revenue are equal: there is no attain or internet loss and one has a “broken even”. No profit or loss is offered, even though the possibility charges have been paid, the capital receives adjusted risk, and the predicted return Steps to be observed to attain a factor equal to the financial unit in light of the multiplicity of products. (Allay 200).
A break-even point defined as the point at which total revenue equals total costs, and then the profit is zero. If an entity’s sales exceed that point, it generates profits, and if it does not reach it, it loses. A break-even point can be defined as the point at which the return or margin of the contribution is equal to the fixed costs for the period (Canada, 2012).
Method of equations:
Sales that are equal in size and value are calculated on the assumption that the entity produces and sells one product using the following equations:
First: Determine the size of the tie:
The amount of sales tie = fixed costs divided by the return of the unit
Where the return of the contribution = unit sale price subtracts the variable cost of the unit.
A tie is the point where the project or organization does not achieve profit or loss, so that the expenses are equal to the revenue
The equation is as follows
Sales at break-even = fixed costs + variable costs
The break-even point is mathematically determined as follows: Breakout point = Total Fixed Costs / (1- Total Variable Costs / Total Sales).
Support the organization to make sales decisions:
Decision-making is at the heart of the administrative process, as it is an overlapping process in all management functions and activities. When management exercises the planning function, it makes specific decisions at each stage of the plan, Policies, program development, identification of appropriate resources or selection of the best methods and methods for their operation. When the Director takes his leadership, he takes a series of decisions, both when directing subordinates and coordination They are also making decisions on determining the appropriate criteria for measuring the results of the work, the adjustments to be made to the plan, and working to correct the errors if any. Thus, the decision-making currency takes place in a cycle continuing with the continuation of the administrative process itself the administrative decision is a legal or systematic act and a means of management to achieve its objectives and objectives where the administrative decision plays a major role in the field of administrative process. The decision is the one who believes in the human resources and the material means necessary for the administrative process. It is the decision that crystallizes trends and policies to concrete matters. And the warp in the course of that process, it also clarifies the obligations and reveals the rights and importance of the era of the issuance to the higher levels of the administrative pyramid where the process of issuance or decision-making of the basic functions of ministers and directors and so on, and this work Which ensures the organizational character of the decision, although issued on behalf of one of the officials, but it is the result of the combined efforts (Michelle, 2009).