JIT production, relevant benefits, relevant costs, ethics. Parson Container Corporation is considering implementing a JIT production system.
Question:
Annual insurance and warehousing costs for inventory would be reduced by 60% of current budgeted level of $350,000.
Payroll expenses for current inventory management staff would be reduced by 15% of the budgeted total of $600,000.
Additional annual costs for JIT system implementation and management, including personnel costs, would equal $220,000.
The additional number of stockouts under the new JIT system is estimated to be 5% of the total number of shipments annually. 10,000 shipments are budgeted for the upcoming year. Each stockout would result in an average additional cost of $250.
Parson’s required rate of return on inventory investment is 10% per year.
Required
1. From a financial perspective should Parson adopt the new JIT system?
2. Should Sue Winston rework the numbers?
3. How should she manage Jim Ingram’s concerns?
Corporation
A Corporation is a legal form of business that is separate from its owner. In other words, a corporation is a business or organization formed by a group of people, and its right and liabilities separate from those of the individuals involved. It may...
Fantastic news! We've Found the answer you've been seeking!
Step by Step Answer:
Related Book For
Cost Accounting A Managerial Emphasis
ISBN: 978-0132109178
14th Edition
Authors: Charles T. Horngren, Srikant M.Dater, George Foster, Madhav
Question Posted: