Illustration 22-22 shows the sequence of activities in JIT processing. A primary objective of JIT is to eliminate all manufacturing inventories since inventories are considered to have an adverse effect on net income because of their high storage and maintenance costs. JIT strives to eliminate inventories by using a pull approach in manufacturing. A multiskilled work force must be developed. A total quality control system must be established throughout the manufacturing operations.
Product quality is enhanced.
Rework costs and inventory storage costs are reduced or eliminated. Production cost savings are realized from the improved flow of goods through the processes. In ABC, the cost of a product is equal to the sum of the costs of all activities performed to manufacture it. ABC recognizes more than a single basis of allocating activity costs to products is needed in order for cost data to be meaningful and accurate. In selecting the appropriate basis, ABC seeks to identify the cost drivers that measure the activities performed on the product.