QUESTION 3 (25 MARKS)

A) Your manufacturing company is considering adopting JIT (Just-In-Time) production. The following annual data have been gathered and are considered to be relevant for future decision-making.

1. Average inventory of RM1,500,000 will decline by RM1,200,000.

2. Current inventory handling, receiving, and storing costs are 12 percent of average inventory value plus RM200,000. The RM200,000 will decline by RM90,000 due to transferring three employees to unfilled positions in another part of the company. If any of these employees leaves the company, they will not be replaced.

3. Annual costs of quality should change as follows:

Prevention (additional training, improved supplier relations) increase by RM250,000.

Inspection (employee time and testing equipment) increase by RM160,000.

Internal failure (rework and delay) decrease by RM210,000.

4. Tooling and setup costs will increase by RM140,000

5. Opportunity cost of capital tied up in inventory is 10 percent per annum.

Required:

i. Compute the estimate of the net annual quantifiable cost or benefit from your company if JIT is adopted. (7 marks) (CLO2:PLO5:C4)

ii. Describe FIVE (5) qualitative factors to be considered before deciding this JIT issue. (10 marks)