Audit and Assurance Practice Exam

What type of agreement is typical in a just-in-time manufacturing process?

1. An agreement for bulk purchasing

2. An agreement to ship merchandise according to production schedules

3. An agreement to defer payments until delivery

4. An agreement for fixed inventory levels

The correct answer is: An agreement to ship merchandise according to production schedules

In a just-in-time (JIT) manufacturing process, the goal is to minimize inventory levels and reduce waste by receiving goods only as they are needed in the production process. This approach requires a high level of coordination between the manufacturer and its suppliers to ensure that materials are delivered at exactly the right time to meet production schedules. The correct answer reflects the essence of JIT, wherein the agreement to ship merchandise according to production schedules allows manufacturers to operate efficiently without holding excessive inventory. This arrangement supports the JIT philosophy by enabling continuous production flow and responding quickly to demand changes, thus ensuring that materials arrive precisely when required for production. Other types of agreements, such as those for bulk purchasing, deferral of payments, or maintaining fixed inventory levels, do not align with the principles of JIT. Bulk purchasing typically involves storing large quantities of inventory, which contradicts the JIT approach of minimizing stock. Similarly, deferring payments until delivery doesn't inherently address the timing of material availability in relation to production needs, while fixed inventory levels do not facilitate the adaptive and responsive nature that JIT requires.