Relevant benefits and costs of JIT purchasing. Hardesty Medical Instruments is consider- ing JIT implementation in 2010. Hardesty's annual demand for product XJ-200, a surgical scalpel, is 20,000 units. If Hardesty implements JIT, the purchase price of the scalpel is expected to increase from $12 to $12.06 because of frequent deliveries by Morrison Manufac- turing Inc. Morrison enjoys a sterling reputation for quality and reliability. Ordering costs will remain at $6 per order. However, the annual number of orders placed will be 200 instead of the current 20. As a result of frequent ordering, Hardesty's order size will decrease proportionally. Hardesty's required rate of return on investment is 20%. Other carrying costs (insurance, materials handling, and so on) will remain at $5.40 per unit. Currently, Hardesty has no stock- out costs. Lower inventory levels from implementing JIT will lead to $3.60 per unit stockout costs on 100 units during the year due to rush orders being required.

REQUIRED 1. Calculate the estimated dollar savings (loss) for Hardesty Medical Instruments from the adoption of JIT purchasing using the format of Exhibit 20-5 (p. 977). 2. Under what conditions would it be beneficial for Hardesty to have Morrison Supply all inventories in the supply chain? manage MRP, LO1