Vander Belt 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 11% per year.
-As a result of the layout reorganization,incremental manufacturing costs are projected to:
A)decrease by $11,400 annually.
B)decrease by $12,500 annually.
C)increase by $12,500 annually.
D)increase by $20,000 annually.

Question

Vander Belt 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 11%  per year.
-As a result of the layout reorganization,incremental manufacturing costs are projected to:
A)decrease by $11,400 annually. 
B)decrease by $12,500 annually. 
C)increase by $12,500 annually. 
D)increase by $20,000 annually.

Quizplus · Accepted Answer

C)(Before: $250,000 × 40%)less (After: $375,000 × 30%)equals additional costs of $12,500