5-37 JIT manufacturing and cost savings Bogden Company introduced JIT manufacturing last year and has prepared the following data to assess the benefits from the change.
CATEGORY BEFORE THE CHANGE AFTER THE CHANGE
Production cycle time 68 days 30 days
Inventories $160,000 $40,000
Total sales $1,260,000 $1,700,000
Costs as percent of sales:
Direct materials 30% 20%
Direct labor 22% 15%
Variable support 28% 10%
Fixed support 12% 5%
Inventory financing costs are 15% per year. Estimate the total financial benefits that resulted from the switch to JIT manufacturing operations.
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CATEGORY BEFORE THE CHANGE AFTER THE CHANGE
Production cycle time 68 days 30 days
Inventories $160,000 $40,000
Total sales $1,260,000 $1,700,000
Costs as percent of sales:
Direct materials 30% 20%
Direct labor 22% 15%
Variable support 28% 10%
Fixed support 12% 5%
Inventory financing costs are 15% per year. Estimate the total financial benefits that resulted from the switch to JIT manufacturing operations.
CLICK HERE FOR SOLUTION
