The manager at Shell Manufacturing needs to incur $90,000 in annual production costs to reduce setup times at the plant in Virginia.The manager expects JIT to reduce average inventory by $475,000 each year and relevant costs of insurance,storage,materials handling,and setup by $32,000 each year.The required rate of return on inventory investments is 10% per year.The manager reports the cost to rework 500 units each is $34,and the cost to reduce warranty repair costs on 210 units is $72 per unit.

Required
Compute the net incremental benefit to consider benefits of lower inventories and annual relevant benefits and costs from implementing JIT.Should the manager implement the change?

Question

The manager at Shell Manufacturing needs to incur $90,000 in annual production costs to reduce setup times at the plant in Virginia.The manager expects JIT to reduce average inventory by $475,000 each year and relevant costs of insurance,storage,materials handling,and setup by $32,000 each year.The required rate of return on inventory investments is 10% per year.The manager reports the cost to rework 500 units each is $34,and the cost to reduce warranty repair costs on 210 units is $72 per unit.

Required
Compute the net incremental benefit to consider benefits of lower inventories and annual relevant benefits and costs from implementing JIT.Should the manager implement the change?

Quizplus · Accepted Answer

B)Yes,the manager at Shell Manufacturing should implement the JIT production system.The relevant benefits of implementing JIT systems would be greater if the manager considered the benefits of achieving higher sales and contribution margins as a result of better quality.
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The Manager at Shell Manufacturing Needs to Incur $90,000 in Annual