Relevant benefits and costs ofJIT purchasing. Hardesty Medical Instruments is considering JIT implementation in 2007. Hardesty’s annual demand for product XJ-200, a surgical scalpel, is 20,000 units. IfHardesty implementsJIT, the purchase price ofthe scalpel is expected to increase from $12 to $12.06 because of frequent deliveries by Morrison Manufacturing, 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 ofthe 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 stockout costs. Lower inventory levels from implementingJIT will lead to $3.60 per unit stockout costs on 100 units during the year.

Required 1. Calculate the estimated dollar savings (loss) for Hardesty Medical Instruments from the adoption ofJIT purchasing using the format ofExhibit 20-5

(p. 784).

2. Under what conditions would it be beneficial for Hardesty to have Morrison manage all inventories in the supply chain?