Bogden Company introduced JIT manufacturing last year and hasperpared the follow

Question

Bogden Company introduced JIT manufacturing last year and hasperpared the following data to assess the benefits from thechange: Category                             Before theChange                       After the Change Product cycletime                     68days                                       30 days Inventories                                $160,000                                   $40,000 TotalSales                           $1,260,000                                  $1,700,000 Costs as percent of sales: Directmaterials                            30%                                         20% Directlabor                                  22%                                        15% Variablesupport                           28%                                         10% Fixedsupport                               12%                                         5% Inventory financing costs are 15% per year. Estimate thetotal financial benefits that resulted from the switch to JITmanufacturing operations. Bogden Company introduced JIT manufacturing last year and hasperpared the following data to assess the benefits from thechange: Category                             Before theChange                       After the Change Product cycletime                     68days                                       30 days Inventories                                $160,000                                   $40,000 TotalSales                           $1,260,000                                  $1,700,000 Costs as percent of sales: Directmaterials                            30%                                         20% Directlabor                                  22%                                        15% Variablesupport                           28%                                         10% Fixedsupport                               12%                                         5% Inventory financing costs are 15% per year. Estimate thetotal financial benefits that resulted from the switch to JITmanufacturing operations.

Explanation / Answer

Before the Change After the Change FinancialBenefits Total Sales $1,260,000 $1,700,000 $440,000 Costs Direct materials 30%                         20% $378,000 $340,000 $38,000 Direct labor      22%                         15% $277,200
$255,000 $22,200 Variable support  28%                            10% $352,800 $170,000 $182,800 Fixedsupport       12%                             5% $151,200 $85,000 $66,200 Inventory finance cost   $160,000 x 15%
                                    $ 40,000 x 15% $24,000 $6,000 $18,000 Total $76,800 $844,000 $767,200 * Total financial benefits $767,200 resulted from the switch toJIT manufacturing operations. Before the Change After the Change FinancialBenefits Total Sales $1,260,000 $1,700,000 $440,000 Costs Direct materials 30%                         20% $378,000 $340,000 $38,000 Direct labor      22%                         15% $277,200
$255,000 $22,200 Variable support  28%                            10% $352,800 $170,000 $182,800 Fixedsupport       12%                             5% $151,200 $85,000 $66,200 Inventory finance cost   $160,000 x 15%
                                    $ 40,000 x 15% $24,000 $6,000 $18,000 Total $76,800 $844,000 $767,200

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