The wholesale division of Navigator Enterprises is considering the installation of a just-in-time purchasing system. The company's accountant has provided the following figures if the system is adopted:
• Sales lost because of out-of-stock situations will total 5,500 units, with each unit producing an average profit for the firm of $23.
• The overall inventory will drop by $700,000. Navigator can invest these funds elsewhere and produce a return of 13%.
• A leased warehouse (monthly rent of $3,000) will no longer be needed.
• Two warehouse employees (total annual salary cost of $43,000) will be transferred elsewhere in the firm.
• Annual property taxes and insurance are expected to fall by $18,900.
• In order to keep valued customers, Navigator will occasionally have to use air freight when an out-of-stock situation arises, resulting in added cost for the company of $2,300.
Required:
a. Determine whether it is financially advantageous over a 12-month period for Navigator to adopt the just-in-time system.
b. How would Navigator describe the "ideal supplier" if the company adopts the just- in-time system.