Question: TeleChief Inc. manufactures smart phones. It is considering the implementation of a JIT system. Costs to reconfigure the production line will amount to $200,000 annually.

TeleChief Inc. manufactures smart phones. It is considering the implementation of a JIT system. Costs to reconfigure the production line will amount to $200,000 annually. Estimated benefits from the change to JIT are as follows:

The quality advantages of JIT should reduce current rework cost of $300,000 by 25%.

Materials storage, handling, and insurance costs of $250,000 would be reduced by an estimated 40%.

Average inventory is expected to decline by 300,000 units, and the carrying cost per unit is $0.35.

Required:

1. What is the estimated financial advantage (disadvantage) of changing to a JIT system?

2. Are there any nonfinancial advantages (disadvantages) of changing to a JIT system?

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