Alexus, Inc. is considering implementing a just-in-time (JIT) production system. Upper management believes that the new system could reduce the average inventory level of $5,000,000 by 80%. The operations manager is opposed to a JIT system because she believes that it will be too costly to manage, will result in increased stockouts, and will lead to employee layoffs and low morale for the remainder of the workers.

The following data has been compiled that may affect the decision to implement a JIT system:

• Inventory insurance and warehouse costs would be reduced by 55% of the annual budgeted costs of $400,000
• Inventory related payroll expenses would be reduced by 25% of the annual budgeted cost of $800,000
• JIT system implementation and maintenance costs would be budgeted at $200,000 annually
• Stockouts under the JIT system are expected to be 4% of total annual shipments. Twelve thousand shipments are budgeted for the upcoming year. It is expected that each stockout would result in an average additional cost of $200
• Alexus, Inc. required rate of return on inventory is 12% per year.

In the initial post:

1. Calculate the financial benefit or loss from implementing a JIT system given the scenario. In the presentation, be sure to identify each relevant benefit and each relevant cost under analysis if a JIT production system is implemented.
2. Assume you are Alexus' controller and describe your professional obligations to the production manager. Refer to the Standards of Ethical Conduct for Management Accountants from the Institute of Management Accountants to justify your response.
3. List at least one recommendation you would have to ease the production manager's concerns listed in the scenario.