Question

If a just-in-time purchasing policy is successful in reducing the total inventory costs of a manufacturing company, which of the following combinations of cost changes would be most likely to occur?

Answer 1

Answer:

Stock out costs increase

Carrying costs decrease

Explanation:

Just in time (JIT) decreases total inventory and increases the number of deliveries made by the company's vendors.

Since the company is going to hold fewer materials and components, then the risk of an stock out increases, resulting in higher stock out costs.

The total inventory will decrease, therefore, the carrying costs will also decrease.