Cost Accounting 101 Practice Test: Inventory Management, Just-in-Time, and Simplified Costing Methods — Flashcards

Inventory management is the process of ordering, storing, using, and selling a company's inventory. Just-in-time (JIT) is an inventory management method that involves receiving goods from suppliers only as they are needed. 

Here are some inventory costing methods:
First In, First Out (FIFO): Companies sell the inventory first that they bought first.
Last In, First Out (LIFO): Companies sell the inventory first that they bought last.
Weighted Average Cost (WAC)
Specific Identification 

JIT's main objective is to reduce inventory holding costs and increase inventory turnover. It requires working closely with suppliers so that raw materials arrive as production is scheduled to begin, but no sooner. The goal is to have the minimum amount of inventory on hand to meet demand. 
JIT can improve a company's competitiveness by minimizing wastes and improving production efficiency and product quality. 

Some inventory costs include:
Carrying costs: These costs include the opportunity cost of the investment tied up in inventory and the costs associated with storage such as space rental, insurance, obsolescence, and spoilage.
Stockout costs: These costs pertain to the financial losses experienced when a business exhausts its inventory and fails to fulfill customer demand.