Umberger Manufacturing, Inc., is considering reorganizing its plant into manufacturing cells. The following estimates have been prepared to evaluate the benefits from the reorganization:
Inventory carrying costs are estimated to be 10% per year.
-As a result of the layout reorganization,reduced levels of work-in-process inventory are projected to decrease inventory carrying costs annually by:
A)$12,500.
B)$ 9,000.
C)$ 6,000.
D)$ 3,500.

Question

Umberger Manufacturing, Inc., is considering reorganizing its plant into manufacturing cells. The following estimates have been prepared to evaluate the benefits from the reorganization:  
Inventory carrying costs are estimated to be 10% per year.
-As a result of the layout reorganization,reduced levels of work-in-process inventory are projected to decrease inventory carrying costs annually by:
A)$12,500. 
B)$ 9,000. 
C)$ 6,000. 
D)$ 3,500.

Quizplus · Accepted Answer

D)(Before: $125,000 × 10%)less ( After: $90,000 × 10%)equals cost savings of $3,500.