Question
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
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:
ItemExisting
SituationAfter
Adopting JITManufacturing costs as percentage of sales:Product-level support12%6%Variable manufacturing overhead2912Direct materials3121Direct manufacturing labor2215Other financial data:Sales revenue$1,440,000$1,830,000Inventory of WIP270,00048,000Other data:Manufacturing cycle time60days30daysInventory financing costs (per annum)10%10%
Required:
As the management accountant for the company, prepare n 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?
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started