Reference no: EM132586193

CO-VID Corporation manufactures smart thermal scanner. CO-VID is planning to implement a JIT production system, which requires annual tooling costs of P150,000.00. CO-VID estimates that the following annual benefits would arise from JIT production:

a. Average inventory will decline by P700,000.00, from P900,000.00 to P200,000.00.

b. Insurance, space, materials handling, and set up costs, which currently total to P200,000.00, would decline by 30%.

c. The emphasis on quality inherent in JIT systems would reduce rework costs by 20%. CO-VID currently incurs P350,000.00 on rework.

d. Better quality would enable CO-VID to raise the selling prices of its products by P3.00 per unit. CO-VID sells 30,000 units each year.

e. CO-VID's required rate of return on inventory investments is 12% per year.

You are required to determine the following:

Question 1. Calculate the net benefits or cost to the CO-VID Corporation from implementing a JIT production system.

Question 2. What other nonfinancial and qualitative factors should CO-VID consider before deciding on whether it should implement a JIT system?