Relevant Cost Analysis—Conversion to JIT; Spreadsheet Application As part of its commitment to quality, the J. J. Borden manufacturing company is proposing to introduce just-in-time(JIT) production methods. Managers of the company have an intuitive feel regarding the financialbenefits associated with a change to JIT, but they would like to have some data to inform their decision making in this regard. You are provided with the following data:[LO 17-5][LO 17-1, 17-5]Item Existing Situation After Adopting JITManufacturing Costs as Percentage of Sales:Product-level support 12% 5%Variable manufacturing overhead 28 10Direct materials 30 20Direct manufacturing labor 22 15Other Financial Data:Sales revenue $1,350,000 $1,650,000Inventory of WIP 180,000 30,000Other Data:Manufacturing cycle time 60 days 30 daysInventory financing costs (per annum) 10% 10%Final PDF to printerblo17029_ch17_713-774.indd 760 02/19/18 09:10 AM760 Part Three Operational-Level ControlRequired1. As the management accountant for the company, construct an Excel spreadsheet that can be used toestimate the financial benefits associated with the adoption of JIT. Specifically, what is the estimatedchange in annual operating income (to the nearest whole dollar) attributable to the JIT implementation?2. Provide some explanations as to how or why sales would be expected to increase after a JITimplementation.3. In the above example, a reduction of both direct and indirect (i.e., support) costs are predicted. Explainhow or why a reduction in each of these two classes of cost might occur in conjunction with a JITimplementation.
Relevant Cost Analysis—Conversion to JIT; Spreadsheet Application As part of its commitment to quality, the J. J. Borden manufacturing company is proposing to introduce just-in-time
(JIT) production methods. Managers of the company have an intuitive feel regarding the financial
benefits associated with a change to JIT, but they would like to have some data to inform their decision making in this regard. You are provided with the following data:
[LO 17-5]
[LO 17-1, 17-5]
Item Existing Situation After Adopting JIT
Manufacturing Costs as Percentage of Sales:
Product-level support 12% 5%
Variable manufacturing
Direct materials 30 20
Direct manufacturing labor 22 15
Other Financial Data:
Sales revenue $1,350,000 $1,650,000
Inventory of WIP 180,000 30,000
Other Data:
Manufacturing cycle time 60 days 30 days
Inventory financing costs (per annum) 10% 10%
Final PDF to printer
blo17029_ch17_713-774.indd 760 02/19/18 09:10 AM
760 Part Three Operational-Level Control
Required
1. As the
estimate the financial benefits associated with the adoption of JIT. Specifically, what is the estimated
change in annual operating income (to the nearest whole dollar) attributable to the JIT implementation?
2. Provide some explanations as to how or why sales would be expected to increase after a JIT
implementation.
3. In the above example, a reduction of both direct and indirect (i.e., support) costs are predicted. Explain
how or why a reduction in each of these two classes of cost might occur in conjunction with a JIT
implementation.
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