The Controller of Nip-It-In-The-Bud Inc

question 129

Essay

The Controller of Nip-it-in-the-Bud Inc. has studied the possibility of implementing a JIT production system. The annual incremental retooling costs of the JIT system is projected to be about $67,000 however, the new system will lower insurance costs by $10,000 and storage costs will drop by $20,000 a year as the company will be able to reuse warehouse space for other strategic purposes. In addition, material handling costs will drop by $10,000 a year and because of a resulting increase in quality and faster delivery, the company's contribution margin on the product will increase by $2.00 on annual sales of 20,000 units.
Required:
Calculate the net incremental benefit of the JIT system implementation.

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Definitions:

Sole Proprietorship

A business owned and operated by a single individual, with no legal distinction between the owner and the business entity.

Owner's Equity

The residual interest in the assets of a company after deducting liabilities, representing the ownership's value in the business.

Merchandise

Goods that are purchased for resale at a profit as part of a business's retail operations.

Withdrawal

The act of removing funds from an account, or the act of removing capital from a business by its owner.