What value is ABC classification based upon?

ABC classification is primarily based on the monetary value of items in inventory. This method categorizes inventory into three classes (A, B, and C) to manage resources more effectively, with 'A' items representing the highest value but typically the lowest quantity, 'B' items being of moderate value and quantity, and 'C' items comprising the largest number of items with the least monetary value.

By focusing on monetary value, organizations can prioritize their management efforts and resources on the items that have the most significant impact on financial performance. This approach allows businesses to maintain tighter control over high-value items, optimize inventory levels, and ultimately reduce carrying costs while ensuring that the most critical items are available when needed.