The TyeNeck Company manufactures men’s neckwear at its A1 plant. TyeNeck is considering implementing a JIT production system. The following are the estimated costs and benefits of JIT production:
a. Annual additional tooling costs would be $280,000.
b. Average inventory would decline by 70% from the current level of $1,500,000.
c. Insurance, space, materials-handling and setup costs, which currently total $300,000 annually, would decline by 30%.
d. The emphasis on quality inherent in JIT production would reduce rework costs by 20%. TyeNeck currently incurs $200,000 in annual rework costs.
e. Improved product quality under JIT production would enable TyeNeck to raise the price of its product by $4 per unit. TyeNeck sells 80,000 units each year.

Required

TyeNeck’s required rate of return on inventory investment is 20% per year.
1. Calculate the net benefit or cost to TyeNeck if it adopts JIT production at the A1 plant.
2. What nonfinancial and qualitative factors should TyeNeck consider when making the decision to adopt JIT production?
3. Suppose TyeNeck implements JIT production at its A1 plant. Give a few examples of the performance measures that TyeNeck could use to evaluate and control JIT production. What would be the benefit of TyeNeck implementing an enterprise resource planning (ERP) system?