Certified Professional Property Administrator (CPPA) Module 3 Practice Test

What is the primary purpose of performing an ABC analysis in inventory management?

To classify items by cost importance into A, B, and C categories To forecast demand To set price discounts To manage supplier scores

Correct Answer:

To classify items by cost importance into A, B, and C categories

Explanation:

ABC analysis is about prioritizing inventory management based on how much each item contributes to value. It classifies items into three groups—A, B, and C—according to their annual cost impact, with A being the most valuable items, B moderate, and C the lowest. The main idea is to focus control efforts where they count most: tighten stock accuracy, set appropriate stock levels, and schedule more frequent reviews for A items, while applying lighter controls for C items. This targeted approach helps prevent stockouts and excess stock where it would hurt most, and it guides where to invest monitoring and replenishment resources. It isn’t about SAMPLEforecasting, setting price discounts, or evaluating suppliers, which are separate activities.

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