The Mason Manufacturing Company uses the perpetual inventory system with its raw material inventory. Mason plans to include raw material costing \(\$ 2,700,000\) in the products that it manufactures. John Mason, president of the company, wants to adopt the just-in-time manufacturing philosophy for the raw materials inventory. He wants to have only the raw material needed for the next day's production at the end of each day. The factory operates 300 days each year. Historically, the raw materials inventory balance at the end of the day has averaged \(\$ 40,000\) cost. Mason has an annual inventory carrying cost equal to 20 percent of total inventory cost.

Required

a. What is the anticipated inventory carrying cost (in dollars) if Mason does not adopt the just-in-time manufacturing philosophy?

b. Calculate the average level (in dollars) for the raw materials inventory if Mason adopts the just-in-time manufacturing philosophy.

c. Calculate the reductions in the raw materials inventory level and the raw materials inventory annual carrying cost if Mason adopts the just-in-time manufacturing philosophy.

d. What other factors or situations should Mason consider before deciding to have only one day's supply of raw material? Consider factors and situations related to environment, supplier problems, labor problems, etc.