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Just-in-time (JIT) and ABC Methodologies

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Just-in-Time (JIT) is concerned with reducing batch sizes to one whereas Activity Based Costing (ABC) is concerned with calculating the cost of activities associated with batches.

Critically assess the extent to which JIT and ABC are either complementary or competing methodologies in management accounting.

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Solution Summary

Just-in-time (JIT) and ABC are compared and whether they are complementary or competing methodologies in management accounting is examined.

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The Activity Based Costing
Activity based costing can be used as an inventory valuation method. The technique was developed to provide more accurate product costs. This improved accuracy is accomplished by tracing costs to products through activities. In other words, costs are traced to activities (activity costing) and then these costs are traced, in a second stage, to the products that use the activities. Another way to express the idea is to say that activities consume resources and products consume activities.
Essentially, an attempt is made to treat all costs as variable, recognizing that all costs vary with something, whether it is production volume or some non-production volume related phenomenon. Both manufacturing costs and selling and administrative costs are traced to products in an ABC system.
Activity Based Costing (ABC)
? Captures the current cost of performing an activity
? Targets High Cost activities
? Provides a context for ...

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