PanAsia Bhd produces a broad line of subassemblies that are used in the production of electronic equipment. The company had suffered competitive pressures especially from abroad. In the effort to improve the quality of its outputs and enable to manage the cost structure more efficiently, the company is considering to adopt JIT in the near future.

The company acquired a new manufacturing equipment one year ago via a 5-year lease with an annual payment of RM500,000. In order to support the move to JIT, the company would have to acquire a new computer-controlled manufacturing equipment; with estimated leasing cost at RM1 million per year for 4 years.  If the company is to break its existing lease it would incur a one-time penalty of RM275,000.

The replacement equipment is expected to provide significant decreases in variable manufacturing cost per unit, from RM50 to RM35. This reduction is attributed to faster setup times with the new machine, faster processing speed, a reduction in direct material waste, and reduction in direct labor expenses. In addition, annual sales are expected to increase by approximately 25% (based on current sales volume of 40,000 units) due to the improvements in manufacturing cycle time and product quality.

Additional financial information is as follows:

Item	Pre JIT	Post JIT
Selling cost per unit	RM5.00	RM5.00
Average per unit cost of Direct Material inventory	RM15.00	RM12.00
Average per unit cost of WIP inventory	RM25.00	RM20.00
Average per unit cost of Finished Goods Inventory	RM40.00	RM30.00
Selling Price per unit	RM70.00	RM70.00




The increased automation associated with the replacement equipment will greatly reduce the need for inventory holdings. The annual inventory holding cost based on the after-tax company’s weighted average cost of capital is 10%. Based on engineering estimates, all inventory holding cost can safely be cut in half from current levels. Based on production requirements, currently PanAsia Bhd holds on average of 4 months of raw material inventory, 3 months WIP inventory and 2 months of finished goods inventory.

 

Required:

1- Explain how the JIT manufacturing system is different from a conventional system.

2- Discuss the appropriate role of management accountant regarding the company’s adoption of a JIT manufacturing system.

3- Compute the annual financial benefits associated with the propose move by the company to JIT.

Total Quality Management (TQM) is a management philosophy, aimed at continuous improvement in all areas of operation. A TQM initiative aims to achieve continuous improvement in quality, productivity and effectiveness. It does this by establishing management responsibility for processes as well as output.

Required:

4-  Explain THREE (3) main characteristics of a TQM.