Power Cyde Manufacturing Inc, is considering reorganúzing its plant into manufac

Question

Power Cyde Manufacturing Inc, is considering reorganúzing its plant into manufacturing cells Th following estimates have been prepared to evaluate the benefits from the reorganization Before the change After the change $1,600,000 Total anrual sales Costs as percentage of sales: 1200,000$1/50 23% 9% 18% $250,000 20% 7% 13% $180,000 Direct materials Direct labor Marufacturing Support costs Work-in-process inventory Inventory carrying costs are estimated to be 10% per year. As a result of the layout reorganization, reduced le vels of work-in-process inventory are projcted to decrease inventory camying costs arnually by 9:18,000. $12,000. $2500, szoo. D $ 7000. Previous Bookmark Next Submit

Explanation / Answer

Answer:

D) $7000

Working notes for the above answer is as under

1. Carrying reduced levels of work-in-process inventory results in a projected cost

savings of $7,000.

Before the change: $250,000 × 10% = $25,000

After the change: $180,000 × 10% =     18,000

Cost savings per year............ .............    $ 7,000

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