Engelhaupt Company is considering a switch to JIT. It has gathered the following data:
Increase in prevention quality costs ............................................. $ 140,000
Increase in appraisal quality costs ................................................... 234,000
Increase in employee training costs ................................................ 125,600
Increase in ordering costs ................................................................ 95,740
Decrease in carrying costs .............................................................. 480,000
Decrease in internal failure costs .................................................... 110,800
In addition, Engelhaupt estimates that its relationship with its customers will improve by 10 percent. Because it will use fewer suppliers, however, there is a greater risk associated with purchasing.
Required
A. What is the total cost savings associated with switching to JIT?
B. How should you determine the costs or cost savings associated with increased customer satisfaction and purchasing risk?
C. Should Engelhaupt make the switch to JIT? Why?