TexTec Inc. is a manufacturer of computer disk drives. It currently operates a traditional factory which is divided into departments and allocates overhead based on direct labor hours.

Recently, the management of the company has been disrupted by a disagreement between the young, aggressive marketing manager, Alice Waterman, and the controller of many years, Jim Bob Johnson. Alice knows that some competitors have changed to just-in-time (JIT) production and believes that this has given them a competitive edge. She has studied the subject and understands the objectives and philosophy of a JIT production system.

Jim Bob studied inventory control in school many years ago and believes that TexTec's inventory policies, based on the EOQ model, are ideal. The EOQ model, he argues, decreases total costs by balancing the costs of ordering and carrying inventories. He believes that changing to JIT production will increase costs because it results in more frequent orders to suppliers. Jim Bob agrees that a JIT system will lower inventory carrying costs, but he is convinced that this cost savings will be lost because of the higher ordering costs.

Alice is puzzled by all this. She doesn't understand how, if what Jim Bob says is true, that TexTec's competitors can sell disk drives at a price below Tex'Tec's own costs.

Alice suspects that the problem is with the EOQ model and has suggested that there are many inventory carrying costs that the EOQ ignores. Jim Bob acknowledges that there may be additional costs. But since these are not direct manufacturing costs, he responds, generally accepted accounting principles does not recognize them as costs of the product.
{Required:}

a. Identify the kinds of expenditures that are identified as inventory carrying costs by the \(\mathrm{OQ}\) model.

b. Suggest some other expenditures that occur as a result of carrying inventories. These may include facilities, operations, and administrative costs.

c. How could a nontraditional cost accounting system associate these costs with TexTec's products?