The Jarvis Corporation Produces Bucket Loader Assemblies for the Tractor

question 46

Essay

The Jarvis Corporation produces bucket loader assemblies for the tractor industry. The product has a long term life expectancy. Jarvis has a traditional manufacturing and inventory system. Jarvis is considering the installation of a just-in-time inventory system to improve its cost structure. In doing a full study using its manufacturing engineering team as well as consulting with industry JIT experts and the main vendors and suppliers of the components Jarvis uses to manufacture the bucket loader assemblies, the following incremental cost-benefit relevant information is available for analysis:
The Jarvis cost of investment capital hurdle rate is 15%.
One time cost to rearrange the shop floor to create the manufacturing cell workstations is $275,000.
One time cost to retrain the existing workforce for the JIT required skills is $60,000.
Anticipated defect reduction is 40%. Currently there is a cost of quality defect assessment listed as $150,000 per year.
The setup time for each of the existing functions will be reduced by 67%. Currently the forecast for setup costs are $225,000 per year.
Jarvis will expect to save $200,000 per year in carrying costs as a result of having a lower inventory.
The suppliers will require a 15% premium over the current level of prices in order to position themselves to supply the material on a smaller and more frequent schedule. Currently the materials purchases are $1,500,000 per year.
Required:
Determine whether it is in the best interest of Jarvis Corporation to install a JIT system.

Understand the impact of transactions on owner's equity and net income.

Recognize the subdivisions of owner's equity.

Identify and correct common errors in accounting entries.

Calculate total credits on a trial balance.

---

Definitions:

Diaphoresis

Excessive sweating, often a response to heat, physical exertion, or medical conditions.

Heart Rate

The number of heartbeats per unit of time, usually expressed as beats per minute (bpm).

Opioid Analgesic

A type of medication used to relieve pain by acting on the central nervous system, derived from opiates or synthesized to mimic their effects.

Bran Cereal

A type of breakfast food made from the hard outer layers of cereal grains, high in fiber and nutrients.