Solution Exhibit 21.20 Annual relevant costs of current production system and JIT production system for Turun Telelaitos Relevant items Incremental costs under current production system Incremental costs under JIT production system Annual tooling costs Required return on investment 12% per year × €900,000 of average stock per year 12% per year × €200,000 of average stock per year Insurance, space, materials handling and setup costs Rework costs Incremental revenues from higher selling prices Total net incremental costs – €108,000 200,000 350,000 – €658,000 €150,000 24,000 ab (c Annual difference in favour of JIT production €154,000 a €200,000 (1 – 0.30) = €140,000 b (1 – 0.20) = €280,000 c × 30,000 units = €90,000
