Relevant Cost Analysis—Conversion to JIT 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 costs | 12% | 5% |
Variable manufacturing overhead | 28% | 10% |
Direct materials | 30% | 20% |
Direct manufacturing labor | 22% | 15% |
Other Financial Data: |
|
|
Sales revenue | $1,350,000 | $1,650,000 |
Inventory of WIP | $180,000 | $30,000 |
Other Data: |
|
|
Manufacturing cycle time | 60 days | 30 days |
Inventory financing cost (per annum) | 10% | 10% |
Required You have been asked, in conjunction with your position as the management accountant for the company, to construct an Excel spreadsheet that can be used to estimate the financial benefits associated with the adoption of JIT.
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