Power Cycle 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	$1,200,000	$1,600,000
Costs as percentage of sales:
Direct materials	23%	20%
Direct labor	9%	7%
Manufacturing Support costs	18%	13%
Workinprocess inventory	$250,000	$180,000

Inventory carrying costs are estimated to be 10% per year.

As a result of the layout reorganization, incremental manufacturing costs are projected to:

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Part 1

A.

increase by $168,000 annually.

B.

decrease by $40,000 annually.

C.

increase by $40,000 annually.

D.

decrease by $33,000 annually.