(Solved) The manager at Shell Manufacturing needs to incur $90,000 in annual production costs to reduce setup ...

The manager at Shell Manufacturing needs to incur $90,000 in annual production costs to reduce setup times at the plant in Virginia. The manager expects JIT to reduce average inventory by $475,000 each year and relevant costs of insurance, storage, materials handling, and setup by $32,000 each year. The required rate of return on inventory investments is 10% per year. The manager reports the cost to rework 500 units each is $34, and the cost to reduce warranty repair costs on 210 units is $72 per unit.

Incremental savings in insurance, storage,
   materials handling and setup   ?
Incremental savings in inventory carrying costs   ?
Incremental savings from reduced rework costs   ?
Incremental savings from reduced warranty repair costs   ?
Incremental annual tooling costs   ?
   Net incremental benefit   ?
Required
Compute the net incremental benefit to consider benefits of lower inventories and annual relevant benefits and costs from implementing JIT. Should the manager implement the change?
A) $11,620; no
B) $21,620; yes
C) $31,620; no
D) $41,620; yes
E) $51,620; no

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The manager at Shell Manufacturing needs to incur $90,000 in annual production costs to reduce setup ...

Managerial Accounting: Decision Making and Motivating Performance

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