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Relevant Cost Analysis-Conversion to JIT 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
Manufacturing Costs as Percentage of Sales:
Product-level support costs
12%
5%
Variable manufacturing overhead
28%
10%
Direct materials
30%
20%
Direct manufacturing labor
22%
15% (Continued)
Other Financial Data:
Sales revenue
$1,350,000
$1,650,000
Inventory of WIP
$180,000
$30,000
Other Data:
Manufacturing cycle time
60 days
30 days
Inventory financing cost (perannum)
Required: You have been asked, in conjunction with your position as the management accountant for the company, to construct an Excel spreadsheet that can be used to estimate the financial benefits associated with the adoption of JIT.
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