Task:
The following applies to the Apex Company. Calculate annual financial impact of adopting the just-in-time inventory policy (show calculation).
Apex will implement JIT inventory policy at January 1, 2001. The inventory will decrease from $1,500,000 to $400,000 allowing the released funds to be invested at a 15 percent return.
Reduced raw material inventory levels and potential stockouts will cost Apex $25,000.
Four employee's earn $40,000 each. Two employee's will be transferred to other positions as a direct affect of JIT adoption and two employee's positions will be terminated.
New suppliers with better quality parts to meet JIT requirements will cost the firm more but be offset by less repairs issues with a net savings of $20,000.
Apex will spend $300,000 to modify their loading docks to accommodate smaller shipments needed as a result of the JIT implementation. The Company will depreciate the cost over 15 years.
Apex will only need ½ of the existing warehouse and they will sublet the remainder to another company for $50,000 per year.
A property and insurance tax savings of $19,000 will be realized from reduced inventories.