Highgate Corporation is an automotive supplier that uses automatic tuming machines to manufacture precision parts from steel bars. Highgate's inventory of raw steel averages $350,000 The steel supplier is willing to supply steel in smaller lots at no additional charge. Ruth Johnson, Highgate's controller, identifies the following effects of adopting a JIT inventory program to virtually eliminate steel inventory: -Without scheduling any overtime, lost sales due to stockouts would increase by 27,000 units per year. However, by incurring overtime premiums of $14,000 per year, the increase in lost sales could be reduced to 12,000 units per year. This would be the maximum amount of overtime that would be feasible for Highgate. - Two warehouses currently used for steel bar storage would no longer be needed. Highgate rents one warehouse from another company under a cancelable leasing arrangement at an annual cost of $36,000. The other warehouse is owned by Highgate and contains 14,000 square feet. Three-fourths of the space in the owned warehouse could be rented for $0.50 per square foot per year. Insurance and property tax costs totaling $7,500 per year would be eliminated. Data table Highgate's required rate of return on investment is 20% per year. Highgate's budgeted income statement for the year ending December 31, 2017, (in thousands) is: Relevant Costs under Current Purchasing Policy Required return on investment Annual insurance and property tax costs Warehouse rent Overtime costs No overtime Overtime premium Stockout costs No stockouts Stockouts Total incremental costs