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JIT manufacturing and cost savings

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Bogden Company introduced JIT manufacturing last year and has prepared the following data to assess the benefits from the change.

CATEGORY BEFORE THE CHANGE AFTER THE CHANGE
production cycle time 68 days 30 days
inventories $160,000 $40,000
total sales $1,260,000 $1,700,000
Costs as % of sales
direct materials 30% 20%
direct labor 22% 15%
variable support 28% 10%
fixed support 12% 5%

Inventory financing costs are 15% per year. Estimate the total financial benefits that resulted from the switch to JIT manufacturing operations.

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Solution Summary

JIT manufacturing and cost savings is examined.

Solution provided by:
Gaurav Agarwal, MS
Education
  • BE, Bangalore University, India
  • MS, University of Wisconsin-Madison
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