Financial and Nonfinancial Aspects of Changing to JIT
IntelliTalk 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 $.35.
1.) What is the estimated financial advantage or disadvantage of changing to a JIT system?
2.) Are there any nonfinancial advantages or disadvantages of changing to a JIT system?