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:

Before the change After the change

Total annual sales $250,000 $375,000

Costs as percentage of sales:

Direct materials 20% 17%

Direct labor 8% 7%

Manufacturing Support costs 12% 6%

Workminusinminusprocess inventory $50,000 $ 40,000

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 $12,500 annually.

B. increase by $12,500 annually.

C. increase by $20,000 annually.

D. decrease by $11,400 annually.