Question

ABC's required rate of return on investment is 15% per year. ABC's budgeted income statement for the year ending December 31, 2017, (in thousands) is: $15,000 $6,380 $2,820 Revenues (1,000,000 units) Cost of goods sold Variable costs Fixed costs Total cost of goods sold Gross margin Marketing and distribution costs Variable costs Fixed costs Total marketing and distribution costs Operating income 9,200 5,800 $2,010 750 2,760 3,040 Required: 1. Calculate the estimated dollar savings (loss) for the ABC Corporation that would result in 2017 from the adoption of JIT purchasing, 2. Identify and explain other factors that ABC should consider before deciding whether to adopt JIT purchasing.

Answer 1

1. In JIT System of Purchasing, Inventory will be procured and all the process were carried only after receipt of order from customer.

Under JIT system of Purchasing Inventory will not be hold and cost of maintaining Inventory will be eliminated and inventory will be procured to the extent of Order received.

And also In JIT System of purchase Marketing and Distribution will not be incurred as order are already received

Estimated Dollar Savings under JIT System of Purchase shall be Marketing and DIstribution Costs either variable or fixed and amount will be $2760

2.But before saving anything ABC Corporation should consider whether all times JIT system of Purchasing will be viable or not. Due to some circumstances Inventory or rawmaterials may not be available immediately and some times it may happen that we may not be able to attend all the orders due to unavoidable circumstances.