To facilitate a move toward JIT production, AB Company is considering a change in its plant layout. The plant controller, Anita Bentley, has been asked to evaluate the costs and benefits of the change in plant layout. After meeting with production and marketing managers, Anita has compiled the following estimates:
- Machine moving and reinstallation will cost $100,000.
- Total sales will increase by 20% to $1,200,000 because of a decrease in production cycle time required under the new plant layout. Average contribution margin is 31% of sales.
- Inventory-related costs will decrease by 25%. Currently, the annual average carrying value of inventory is $200,000. The annual inventory financing cost is 15%.
Should AB implement the proposed change in plant layout? Support your answer