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Exercise 17-51 Relevant Cost Analysis-Conversion to JIT; Spreadsheet Application [LO 17-1, 17-5] As part of its commitment to quality, the J.J. Borden manufacturing company is
Exercise 17-51 Relevant Cost Analysis-Conversion to JIT; Spreadsheet Application [LO 17-1, 17-5] 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: Existing Situation After Adopting JIT Item Manufacturing costs as percentage of sales: Product-level support Variable manufacturing overhead Direct materials Direct manufacturing labor 12% 28 30 21 49 10 20 14 Other financial data: Sales revenue Inventory of WIP $ 1,415,000 245,000 $ 1,780,000 43,000 Other data: Manufacturing cycle time Inventory financing costs (per annum) 60 days 10% 30 days 10% Required: As the management accountant for the company, prepare 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? Items Current Situation After JIT Change Less: Costs Operating profit
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