20-26 JIT production, relevant benefits, relevant costs. The Knot manufactures men's neckware at its Spartanburg plant. The Knot is considering implementing a JIT production system. The following are estimated costs and benefits of JIT production: a. Annual additional tooling costs $250,000 annually. b. Average inventory would decline by 80% from the current level of $1,000,000. c. Insurance, space, materials-handling, and setup costs, which currently total $400,000 annually, would decline by 20%. d. The emphasis on quality inherent in JIT production would reduce rework costs by 25%. The Knot currently incurs $160,000 in annual rework costs. e. Improved product quality under JIT would enable The Knot to raise the price of its product by $2 per unit. The Knot sells 100,000 units per year. The Knot's required rate of return on inventory investment is 15% per year. 1. Calculate the net benefit or cost to The Knot if it adopts JIT production at the Spartanburg plant. 2. What nonfinancial and qualatative factors should The Knot consifer when making the decision to adopt JIT production? 3. Suppose The Knot implements JIT production at its Spartanburg plant. Give examples of performance measure The Knot could use to evaluate and control JIT production. What would the benefit of The Knot implementing an enterprise resource planning (ERP) system?
