CMA Study Group

Question: 32

Which changes in costs are most conducive to switching from a traditional inventory ordering system to a just-in-time ordering system?

Cost per Inventory Unit Purchase Order Carrying Costs A. Increasing Increasing B. Decreasing Increasing Answer (B) is correct. A JIT system is intended to minimize inventory. Thus, if inventory carrying costs are increasing, a JIT system becomes more cost effective. Moreover, purchases are more frequent in a JIT system. Accordingly, a decreasing cost per purchase order is conducive to switching to a JIT system. C. Increasing Decreasing D. Decreasing Decreasing

When there is a high cost for caring for inventory and the cost of PO not too much (low cost ) so this is the best chance for JIT
JIT will fix the inventory cost by decreasing the need for inventory and increasing the POs
JIT will do a lot of P.Os because there is no inventory on hand

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Ahmed Hassanein
Chief Financial Officer
Farwaniya
Kuwait
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Original Message:
Sent: 10-25-2013 03:41 AM
From: Ozge Yagcioglu
Subject: Could you please help me for the question?

Question: 32

Which changes in costs are most conducive to switching from a traditional inventory ordering system to a just-in-time ordering system?

Cost per Inventory Unit Purchase Order Carrying Costs A. Increasing Increasing B. Decreasing Increasing Answer (B) is correct. A JIT system is intended to minimize inventory. Thus, if inventory carrying costs are increasing, a JIT system becomes more cost effective. Moreover, purchases are more frequent in a JIT system. Accordingly, a decreasing cost per purchase order is conducive to switching to a JIT system. C. Increasing Decreasing D. Decreasing Decreasing