17) 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