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,incremental manufacturing costs are projected to:
A)increase by $84,000 annually
B)increase by $20,000 annually
C)decrease by $20,000 annually
D)decrease by $16,500 annually

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,incremental manufacturing costs are projected to:
A)increase by $84,000 annually 
B)increase by $20,000 annually 
C)decrease by $20,000 annually 
D)decrease by $16,500 annually

Quizplus · Accepted Answer

B)(Before: $600,000 × 50%)less (After: $800,000 × 40%)equals additional costs of $20,000.