Solution-Estimate the net financial benefit

Estimate the net financial benefit

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Reference no: EM133089216

Question - Houston Co. recently introduced a new inventory control system In an effort to improve its competitive position, Its management accountant assembled the following data regarding the recent change:

Item	Before new system	After new system
Production cycle time	90 days	80 days
Inventory level (daily average)	$450,000	$400,000
Total sales	$2,500,000	$2,700,000
Estimated cost data, % of sales
Direct materials	40%	35%
Direct labor	20%	15%
Variable overhead	15%	15%
Fixed overhead	10%	10%

The company's inventory financing cost is estimated as 5% per year.

Required -

a) Estimate the net operating income that the company realized under the current inventory control system.

b) Estimate the net financial benefit (expressed in terms of operating income) that the company realized from the new inventory control system.

c) Estimate the net financial benefit (expressed in terms of operating income) that the company realized from switching to the new inventory control system.

d) List four (4) non-financial benefits the company might expect as a result to its move to new inventory control system.

Reference no: EM133089216

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Estimate the net financial benefit

Reference no: EM133089216

Reference no: EM133089216

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