In an effort to improve its competitive position, Oregon Co. recently introduced a new inventory control system. Its management accountant assembled the following data regarding the recent change: Item Before new system After new system Production cycle time 50 days $400,000 $1,800,000 40 days Inventory level $300,000 Total sales $2,000,000 Estimated cost data, % of sales Direct materials 35% 30% Direct labor 20% 15% Variable overhead 15% 10% Fixed overhead 10% 5% The company's inventory financing cost is estimated as 10% per year. Required: 1. Estimate the net financial benefit (expressed in terms of operating income) that the company realized from the switch to a new inventory control system. 2. List four (4) non-financial benefits the company might expect as a result to its move to new inventory control system.
In an effort to improve its competitive position, Oregon Co. recently introduced a new inventory control system. Its management accountant assembled the following data regarding the recent change: Item Before new system After new system Production cycle time 50 days $400,000 $1,800,000 40 days Inventory level $300,000 Total sales $2,000,000 Estimated cost data, % of sales Direct materials 35% 30% Direct labor 20% 15% Variable overhead 15% 10% Fixed overhead 10% 5% The company's inventory financing cost is estimated as 10% per year. Required: 1. Estimate the net financial benefit (expressed in terms of operating income) that the company realized from the switch to a new inventory control system. 2. List four (4) non-financial benefits the company might expect as a result to its move to new inventory control system.
Financial Accounting
15th Edition
ISBN:9781337272124
Author:Carl Warren, James M. Reeve, Jonathan Duchac
Publisher:Carl Warren, James M. Reeve, Jonathan Duchac
Chapter7: Inventories
Section: Chapter Questions
Problem 4CP: Golden Eagle Company began operations on April 1 by selling a single product. Data on purchases and...
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Transcribed Image Text:In an effort to improve its competitive position, Oregon Co. recently introduced a new inventory control system. Its management accountant assembled the following data regarding the recent change:
Item
Before new system After new system
Production cycle time
50 days
40 days
Inventory level
$400,000
$300,000
Total sales
$1,800,000
$2,000,000
Estimated cost data, % of sales
Direct materials
35%
30%
Direct labor
20%
15%
Variable overhead
15%
10%
Fixed overhead
10%
5%
The company's inventory financing cost is estimated as 10% per year.
Required:
1. Estimate the net financial benefit (expressed in terms of operating income) that the company realized from the switch to a new inventory control system.
2. List four (4) non-financial benefits the company might expect as a result to its move to new inventory control system.
3. What are the primary expected costs of implementing a new inventory control system?
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