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Prepare an estimate the financial benefits associated

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Reference no: EM132605404

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                                   30days

Inventory financing costs (per annum)                 10%                                     10%

Required:

Question 1: As the management accountant for the company, prepare 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: EM132605404

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