ABC inventory system definition

The ABC inventory system is different from activity-based costing. The ABC inventory system is used in order to focus on the most important items in inventory. Usually a relatively few items will account for a very significant value. These relatively few items with great importance are categorized as the "A" items. It is also common for many of the items in inventory to have a relatively small aggregate value. These items are categorized as "C" items. The remaining items are categorized as the "B" items. By closely monitoring the "A" items, a company is able to manage the most important items with a relatively small effort.