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Make an estimate financial benefits associated with adoption

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Reference no: EM132550937

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:

                                                                        Item                        Existing

                                                            Situation After              Adopting JIT

Manufacturing costs as percentage of sales:

Product-level support                               13%                         4%

Variable manufacturing overhead                   29                          11

Direct materials                                         31                            21

Direct manufacturing labor                            20                           13

Other financial data:

Sales revenue                                        $1,355,000              $1,660,000

Inventory of WIP                                         185,000                   31,000

Other data:

Manufacturing cycle time                              60days                  30

daysInventory financing costs ( per annum)          10%                    10%

Required:

Question 1: As the management accountant for the company, make an estimate the financial benefits associated with the adoption of JIT. Specifically, what is the estimated change in annual operating income attributable to the JIT implementation?

Reference no: EM132550937

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