Pritchett Enterprises manufactures hiking and outdoor equipment. The companys plant in western Colorado has recently seen dramatic
Question:
The company has decided to implement just-in-time inventory management techniques. Using JIT will reduce the amount of inventory on hand at any point in time and save approximately $50,000 annually on inventory carrying costs. In addition, there will be 70 percent fewer purchase orders for inventory issued, but twice as many setups for production runs. The company will also be able to receive a 2 percent discount on raw materials purchases because of the long-term nature of the orders.
Required
A. If raw materials purchases are $1,000,000 per year (that is, cost before the above changes are implemented), what quantitative impact will the change to JIT have on the overall costs for the company?
B. What qualitative factors will be impacted by the change to JIT?
C. Does it appear that the move to JIT will be positive or negative for the company? Why or whynot?
Step by Step Answer:
Managerial Accounting A Focus on Ethical Decision Making
ISBN: 978-0324663853
5th edition
Authors: Steve Jackson, Roby Sawyers, Greg Jenkins