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:
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Before the change
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After the change
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Total annual sales
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$250,000
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$375,000
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Costs as percentage of sales:
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Direct materials
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20%
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17%
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Direct labor
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8%
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7%
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Manufacturing Support Costs
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12%
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6%
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Work-in-process inventory
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$50,000
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$40,000
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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.