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?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
answer part 3 only
i have attached the naswers to part 1 and 2
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.
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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