JIT Systems' Manufacturing Efficiency Ratio
Methodical Corporation Is Considering the Implementation

question 52

Essay

JIT systems' manufacturing efficiency ratio
Methodical Corporation is considering the implementation of a JIT inventory system. The company recently analyzed its cycle time to determine the average number of days spent in each activity of its production process. A summary of the analysis is shown below:
$$\begin{array} { | l | c | } \hline \text { Production Activity } & \text { Number of Days } \\\hline \text { Receiving materials } & 1 \\\hline \text { Inspecting materials } & 2 \\\hline \text { Storing materials } & 5 \\\hline \text { Moving materials into production } & 3 \\\hline \text { Setting-up production equipment } & 4 \\\hline \text { Cutting materials } & 3 \\\hline \text { Assembling materials } & 4 \\\hline \text { Painting finished products } & 2 \\\hline \text { Packaging finished products } & 1 \\\hline & \\\hline\end{array}$$
(a) Methodical 's value-added production activities include: ________________________.
(b) Methodical 's total cycle time is __________ days.
(c) Methodical's manufacturing efficiency ratio is ___________%.
(d) Which activities might be reduced or eliminated should Methodical implement a JIT system?

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Definitions:

Investor Risk Aversion

The tendency of investors to prefer lower-risk investments to avoid potential losses.

WACC

Weighted Average Cost of Capital, a calculation of a firm's cost of capital in which each category of capital is proportionately weighted.

Appropriate Discount Rate

The rate used to discount future cash flows to their present value to account for risk and time value of money, reflecting the opportunity cost of capital.

Interest Rate

The share of a loan incurred as interest costs to the borrower, habitually depicted as an annual percentage of the loan's outstanding amount.