Bohemian Ltd. uses the traditional inventory system. The company is looking into a Just In Time...

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Bohemian Ltd. uses the traditional inventory system. The company is looking into a Just In Time (JIT) system and requires a return on investment of 15%. The company has determined the following changes would occur under the JIT system: 1. The company would likely incur lost sales of 5,000 units. Currently the company sells a unit for $35 each. 2. The company currently sells 150,000 units per year. Total manufacturing variable costs were $1,950,000 and total non-manufacturing variable costs were $1,350,000. 3. Overtime premiums would increase by $70,000 4. Return on investment is 15%. Average inventory of $2,500,000 would decline by 80%. 5. The company pays $50,000 per year for re-tooling costs. These costs would increase by 30%. 6. Plant insurance and maintenance costs would decrease by $55,000. 7. Plant storage of 5,000 square feet is no longer required and could be rented for $3.00 per square foot. Required 1. Calculate the lost contribution margin per unit and in total dollars for the lost sales if the JIT system was implemented. 2. Calculate the net benefit or cost of implementing a JIT system. Should the company implement a JIT system? Bohemian Ltd. uses the traditional inventory system. The company is looking into a Just In Time (JIT) system and requires a return on investment of 15%. The company has determined the following changes would occur under the JIT system: 1. The company would likely incur lost sales of 5,000 units. Currently the company sells a unit for $35 each. 2. The company currently sells 150,000 units per year. Total manufacturing variable costs were $1,950,000 and total non-manufacturing variable costs were $1,350,000. 3. Overtime premiums would increase by $70,000 4. Return on investment is 15%. Average inventory of $2,500,000 would decline by 80%. 5. The company pays $50,000 per year for re-tooling costs. These costs would increase by 30%. 6. Plant insurance and maintenance costs would decrease by $55,000. 7. Plant storage of 5,000 square feet is no longer required and could be rented for $3.00 per square foot. Required 1. Calculate the lost contribution margin per unit and in total dollars for the lost sales if the JIT system was implemented. 2. Calculate the net benefit or cost of implementing a JIT system. Should the company implement a JIT system?

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To calculate the net benefit or cost of implementing a JIT system we need to consider the changes that would occur under the JIT system and compare th... View the full answer