As part of its commitment to quality, the J. J. Borden manufacturing company is proposing to introduce just-in-time (JIT) production methods. Managers of the company have an intuitive feel regarding the financial benefits associated with a change to JIT, but they would like to have some data to inform their decision making in this regard. You are provided with the following data:

Item Existing

Situation AfterAdopting JIT

Manufacturing costs as percentage of sales:

Product-level support 13% 4%

Variable manufacturing overhead 29 11

Direct materials 31 21

Direct manufacturing labor 20 13

Other financial data:

Sales revenue $1,355,000 $1,660,000

Inventory of WIP 185,000 31,000

Other data:

Manufacturing cycle time 60days 30

daysInventory financing costs ( per annum)10% 10%

Required:

As the management accountant for the company, make an estimate the financial benefits associated with the adoption of JIT. Specifically, what is the estimated change in annual operating income attributable to the JIT implementation?