Reference no: EM132784439
Question - The Bremer Corporation manufactures cordless telephones. Bremer is planning to implement a JIT production system, which requires annual tooling costs of P150,000. Bremer estimates that the following annual benefits would arise from JIT production.
a. Average inventory will decline by P700,000, from P900,000 to P200,000.
b. Insurance, space, materials handling, and setup costs, which currently total P200,000, would decline by 30%.
c. The emphasis on quality inherent in JIT systems would reduce rework costs by 20%. Bremer currently incurs P350,000 on rework.
d. Better quality would enable Bremer to raise the prices of its products by P3 per unit. Bremer sells 30,000 units each year.
Bremer required rate of return on inventory investment is 12% per year.
Required -
1. Calculate the net benefit or cost to the Bremer Corporation from implementing a JIT production system.
2. What other nonfinancial and qualitative factors should Bremer consider before deciding on whether it should implement a JIT system?
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