Question:
Changing from a Traditional System to a JIT System
Boston Company was trying to decide whether or not to change from a traditional inventory system to a just-in-time (JIT) system. The president, Teresa Franconia, wanted to know whether this change would merely affect how goods were ordered and produced, or if it would also impact the financial health of the company, as well as the accounting system itself. The controller, Donna Ortiz, was asked to prepare a report estimating any expected cost savings and changes to the accounting system resulting from a move to JIT.
Required:
1. What costs should be affected by the introduction of a JIT system?
2. Should Franconia's customers reap any benefits from the change to JIT?
3. Will Ortiz have to make any changes in the way that inventory is accounted for under a JIT system?