Financial and Nonfinancial Aspects of Changing to JIT
TeleChief Inc. manufactures smart phones. It is considering the implementation of a JIT system. Costs to reconfigure the production line will amount to $200,000 annually. Estimated benefits from the change to JIT are as follows:
• The quality advantages of JIT should reduce current rework cost of $300,000 by 25%.
• Materials storage, handling, and insurance costs of $250,000 would be reduced by an estimated 40%.
• Average inventory is expected to decline by 300,000 units, and the carrying cost per unit is $0.35.
Required:
1. What is the estimated financial advantage (disadvantage) of changing to a JIT system?
2. Are there any nonfinancial advantages (disadvantages) of changing to a JIT system?
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