Vander Belt Manufacturing, Inc., is considering reorganizing its plant into manu

Question

Vander Belt Manufacturing, Inc., is considering reorganizing its plant into manufacturing cels. The following estimates have been prepared to evaluate the benefts from the reorganization Before the change Ater the changse 375,000 Total annual sales Costs as percentage of sales $250,000 Direct materials Direct labor Manutacturing Support costs 20% 8% 12% 50,000 17% 7% 6% 40,000 Work-in-process inventory oInventory carrying costs are estimated to be 11% per year ainAs a result of stching to a celular manufacturnng operation, total benefts are projected to increase annualily by O A. $111,400 OB. 3113600 OC. $138 800 D. $136.400

Explanation / Answer

Answer B.$113,600

Explanation :

Note : Inventory carrying costs = workin process inventory * inventory carrying cost %

Table showing increase in total benefits annually by switching to a cellular manufacturing operation

Before the change

(A)

After the change

(B)

Increase in Total benefits

Particulars

Before the change

(A)

After the change

(B)

Increase in Total benefits

Total annual sales $250,000 $375,000 Less: Cost as % of sales [$250,000 *(20%+8 %+12 %)] = $100,000 [$375,000 *(17 %+ 7 % + 6 %)] = $112,500 Less : Inventory carrying costs ($50,000 *11%) = $5,500 ($40,000 *11%) = $4,400 Total Benefits $144,500 $258,100 $113,600

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