Question:
Financial and Nonfinancial Aspects of Changing to JIT
Katy, 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?