Katy, Inc., manufactures smarthphones. It is considering to implementation of a JIT sysytem. Costs to reconfigure the production line will amount $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?