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Determining the incremental manufacturing costs

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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.

Reference no: EM13856509

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