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ACCA Applied Knowledge · Business and Technology · The relationship between accounting and other business functions

A manufacturer adopts a just-in-time (JIT) purchasing approach. Which of the following is the most direct effect of this approach on the accounting function's work?

Under JIT purchasing, materials arrive only when needed, so raw material inventory and holding costs are minimal. Accountants therefore have less stores valuation and holding cost work. Higher buffer stocks are the opposite of what JIT aims to achieve.

  1. ARaw materials inventory holding costs fall, so less inventory valuation work is needed for storesCorrect
  2. BHigher buffer stocks must be financed, increasing interest to be budgeted
  3. CProduction costs become impossible to track by product
  4. DSuppliers must be paid in advance of delivery to guarantee supply

Explanation

JIT aims to receive materials only when needed, so raw material inventory and its holding costs are minimal. This reduces the stores valuation and holding cost work for accountants. Option B describes the opposite of JIT, since JIT reduces buffer stocks rather than increasing them.

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