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Vander Belt Manufacturing, Inc., is considering reorganizing its plant into manufacturing cells. The following estimates have been prepared to evaluate the benefits from the reorganizing:
Before the change
After the change
Total annual sales
$250,000
$375,000
Costs as percentage of sales:
Direct materials
20%
17%
Direct labor
8%
7%
Manufacturing Support Costs
12%
6%
Work-in-process inventory
$50,000
$40,000
Inventory carrying costs are estimated to be 11% per year.
As a result of the layout reorganization, incremental manufacturing costs are projected to:
a. Decrease by $11,400 annually.
b. Increase by $12,500 annually.
c. Increase by $20,000 annually.
d. Decrease by $12,500 annually.
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