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Working Capital

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FM Exams › Working Capital

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  • January 3, 2021 at 11:58 am #601356
    adarsh1997
    Participant
    • Topics: 629
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    • ☆☆☆☆

    Hello John,

    ” A JIT system implies relatively low reorder cost”

    1. Could you explain how the statement is correct?
    -In a JIT system as order raw materials when we get an order; therefore for every order received, we place an order and hence increase the reorder costs/

    2. Please explain where I am getting things wrong.

    Thanks

    January 3, 2021 at 2:45 pm #601364
    John Moffat
    Keymaster
    • Topics: 56
    • Replies: 51571
    • ☆☆☆☆☆

    Certainly JIT means more orders.

    However for it to be worthwhile adopting a JIT system, the reorder cost each time needs to be fairly small, otherwise the total reorder cost would get very high and make it not worthwhile doing.

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