Question

Henderson air manufactures heating and air conditioning systems. recently, the management team decided to implement a new method of classifying inventory based on two key criteria: value (as measured by the contribution to profit) and risk (as measured by the negative impact of not having the product available when needed). which classification method is henderson air using?

O Quadrant model
O ABC
O Square root method
O Axis model

Answer 1

Henderson Air is using the ABC (Activity-Based Costing) classification method for inventory, ranking items based on their importance to profits and availability risks.

Step-by-step explanation:

The classification method that Henderson Air is using to classify inventory based on value and risk is known as the ABC (Activity-Based Costing) classification method. This inventory management approach ranks items based on their importance, which is often determined by factors such as the item's value to the company's profits and the potential negative impact on the business of not having the item available when needed.

Therefore, items of high value and high risk would likely be classified as 'A' items, receiving the most attention in terms of inventory management and control. Similarly, items of low value and risk would be categorized as 'C' items, with 'B' items falling in between.

Focusing on the 'A' items can help companies like Henderson Air ensure they effectively manage their most critical resources, potentially improving efficiency and cutting down costs associated with inventory.