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In an effort to improve its competitive position, Oregon Co. recently introduced a new inventory control system. Its management accountant assembled the following data regarding the recent change Item Production cycle time Inventory level Total sales Before new system After new system 50 days $400,000 40 days $300,000 $1,800,000 $2,000,000 Estimated cost data, % of sales Direct materials 35% 30% Direct labor 20% 15% Variable overhead 15% 10% Fixed overhead 10% 5% The company's inventory financing cost is estimated as 10% per year. Required: 1. Estimate the net financial benefit (expressed in terms of operating income) that the company realized from the switch to a new inventory control system. 2. List four (4) non-financial benefits the company might expect as a result to its move to new inventory control system. 3. What are the primary expected costs of implementing a new inventory control system?

In an effort to improve its competitive position, Oregon Co. recently introduced a new inventory control system. Its management accountant assembled the following data regarding the recent change Item Production cycle time Inventory level Total sales Before new system After new system 50 days $400,000 40 days $300,000 $1,800,000 $2,000,000 Estimated cost data, % of sales Direct materials 35% 30% Direct labor 20% 15% Variable overhead 15% 10% Fixed overhead 10% 5% The company's inventory financing cost is estimated as 10% per year. Required: 1. Estimate the net financial benefit (expressed in terms of operating income) that the company realized from the switch to a new inventory control system. 2. List four (4) non-financial benefits the company might expect as a result to its move to new inventory control system. 3. What are the primary expected costs of implementing a new inventory control system?

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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answer part 3 only

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Answer 1 Percentage of Before New Percentage of After New Particulars Sales System Sales System Sales 1800000 2000000 Less: Direct 35% -630000 30% -600000 Expenses Direct Labour 20% -360000 15% -300000 810000 1100000 Less: Variable 15% -270000 10% -200000 Expense Contribution 540000 900000 Less: Fixed Expense 10% -180000 5% -100000 360000 800000 Less: Inventory 10% of $400000 -40000 10% of $300000 -30000 Financing Cost Operating Profit 320000 770000 Answer 2 Non- Financial Benefits 1) The production time has decreased which means the finished products will reach to the end consumers faster and thus reducing the lead time and increasing the goodwill of the company in market. 2) Increase in sales shows that the customers are happy with the product from the new system, thus increasing the brand value. 3) Reduced inventory level shows that company is focusing on reducing wastage. 4) Introducing inventory control systems means that the raw materials must be directly reaching the production department reducing production time and wastage during movement.
Transcribed Image Text:Answer 1 Percentage of Before New Percentage of After New Particulars Sales System Sales System Sales 1800000 2000000 Less: Direct 35% -630000 30% -600000 Expenses Direct Labour 20% -360000 15% -300000 810000 1100000 Less: Variable 15% -270000 10% -200000 Expense Contribution 540000 900000 Less: Fixed Expense 10% -180000 5% -100000 360000 800000 Less: Inventory 10% of $400000 -40000 10% of $300000 -30000 Financing Cost Operating Profit 320000 770000 Answer 2 Non- Financial Benefits 1) The production time has decreased which means the finished products will reach to the end consumers faster and thus reducing the lead time and increasing the goodwill of the company in market. 2) Increase in sales shows that the customers are happy with the product from the new system, thus increasing the brand value. 3) Reduced inventory level shows that company is focusing on reducing wastage. 4) Introducing inventory control systems means that the raw materials must be directly reaching the production department reducing production time and wastage during movement.
In an effort to improve its competitive position, Oregon Co. recently introduced a new inventory control system. Its management accountant assembled the following data regarding the recent change: Item Before new system After new system Production cycle time 50 days 40 days Inventory level $400,000 $300,000 Total sales $1,800,000 $2,000,000 Estimated cost data, % of sales Direct materials 35% 30% Direct labor 20% 15% Variable overhead 15% 10% Fixed overhead 10% 5% The company's inventory financing cost is estimated as 10% per year. Required: 1. Estimate the net financial benefit (expressed in terms of operating income) that the company realized from the switch to a new inventory control system. 2. List four (4) non-financial benefits the company might expect as a result to its move to new inventory control system. 3. What are the primary expected costs of implementing a new inventory control system?
Transcribed Image Text:In an effort to improve its competitive position, Oregon Co. recently introduced a new inventory control system. Its management accountant assembled the following data regarding the recent change: Item Before new system After new system Production cycle time 50 days 40 days Inventory level $400,000 $300,000 Total sales $1,800,000 $2,000,000 Estimated cost data, % of sales Direct materials 35% 30% Direct labor 20% 15% Variable overhead 15% 10% Fixed overhead 10% 5% The company's inventory financing cost is estimated as 10% per year. Required: 1. Estimate the net financial benefit (expressed in terms of operating income) that the company realized from the switch to a new inventory control system. 2. List four (4) non-financial benefits the company might expect as a result to its move to new inventory control system. 3. What are the primary expected costs of implementing a new inventory control system?
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