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4 Fantastic Co. (Fantastic) starts its business in 2021. It manufactures and sells premium orange juice in bottles. The following data relating to first year
4 Fantastic Co. (Fantastic) starts its business in 2021. It manufactures and sells premium orange juice in bottles. The following data relating to first year operation is extracted. Number produced Number sold Selling price gallon of gallons 150,000 of gallons 140,000 $6 per Direct material used per gallon $2 per gallon Direct labor gallon Total fixed cost used per $0.9 per gallon manufacturing overhead $228,000 $171,900 Total fixed selling, distribution and administrative expense REQUIRED ner (d) The Production Director suggested to set up a "Just-in- time" inventory system by having an e-platform accepting electronic order of orange juice starting from 1 January next year. He believed the e-platform can help Fantastic to save substantial costs as order is processed electronically and production level can be adjusted easily to address customer demand. The Sales Director supported the suggestion as he can introduce new sales initiative by offering customers "personalized" bottle of orange juice. Customers can design their own logo to be printed on the bottle bought. If based on existing operation, it is not possible to introduce this new initiative as cost is too high. He believed this new sales initiative will bring in 20% increase in sales. (i) (!!) What are the costs of holding inventory at present? (6 marks) What are the potential financial benefits of "Just- in-time" inventory system to Fantastic? (6 marks)
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