The Champion Hardware Co. manufactures specialty brass door handles at its Lynchburg plant and is considering implementing a JIT production system. Champion’s required rate of return is 15% per year. The following are the estimated costs and benefits of JIT production: i. Annual additional tooling costs would be $100,000 ii. Average inventory would decline by 80% from the current level of $1,000,000 iii. Insurance, space, materials-handling, and setup costs, which currently total $300,000 annually, would decline by 25% iv. The emphasis on quality inherent in JIT production would reduce rework costs by 30%. Champion currently incurs $200,000 in annual rework costs v. Improved product quality under JIT production would enable Champion to raise the price of its product by $4 per unit. Champion sells 40,000 units each year. What is the net benefit to Champion if it adopts JIT production?
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