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.
-After the change,work-in-process inventory carrying costs are projected to decrease because of:
A)reduced costs in materials handling.
B)lower financing costs.
C)the decreased need for inventory storage.
D)All of the above are correct.

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.
-After the change,work-in-process inventory carrying costs are projected to decrease because of:
A)reduced costs in materials handling. 
B)lower financing costs. 
C)the decreased need for inventory storage. 
D)All of the above are correct.

Quizplus · Accepted Answer

All three factors mentioned in options A, B, and C will contribute to the decrease in work-in-process inventory carrying costs. As materials handling will become more efficient, the cost of moving the inventory will decrease. Lower financing costs will result from a reduction in the amount of work-in-process inventory that needs to be financed. Lastly, since production will be better coordinated, there will be a decreased need for inventory storage.