Hannah & Maggie are independent recording artists who are considering the use of a just-in-time system for the release of their next album, In the Company of Strangers. The artists believe the switch to JIT will result in the following:

1. As JIT systems are much more efficient than traditional systems, Hannah & Maggie expect an overall decrease in inventory on hand. The artists pay $200 annually for 400 square feet of storage space, but they now need only 30% of that space. Hannah & Maggie decide to lease out the unused space at an annual rate of $2 per square foot.

2. The decrease in inventory also means Hannah & Maggie will be spending less on raw materials. The artists estimate their savings to be $30,000 and plan to invest in a friends microbrew start-up with an expected one-year return of 26%.

3. As the quality of raw materials will increase, Hannah & Maggie have decided that three part-time employees, each earning $2,100 a year, will no longer be needed for CD inspections. One of these part-time employees will be put in charge of order management.

4. The new system will mean that Hannah & Maggie are slower to respond to spontaneous sales. Two months after the CD release, Ellen invites the duo to perform on her TV show. Unable to anticipate the subsequent rush of orders, Hannah & Maggie experience a stock out and lose approximately $60,000 in revenue. An eternal optimist, Hannah reminds Maggie that the stock out will reduce their variable costs by $20,000.

5. New long-term relationships with suppliers allow Hannah & Maggie to spend less time in the office negotiating contracts and more time on the road performing concerts. Maggie estimates the time saved will allow them to perform an additional 5 shows this year, each with expected ticket sales of $6,000.

What impact would the adoption of a Just-in-Time inventory system have on H&Ms net income? $________

Should Hannah & Maggie adopt a just-in-time inventory approach? Yes / No