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.