3.

Strom Ltd is considering outsourcing one of its products rather than producing it in its factory. The business allocates part of the total rental charge of the factory, based on floor area, on the section responsible for making the product. The section bears a charge of 20,000 per year. If the section were closed, the floor space released would be used for warehousing and, as a result, the business would give up the tenancy of an existing warehouse for which it is paying 25,000 a year.

A business has approached Strom Ltd to offer 22,000 a year to sublet the released factory space.

What will be the relevant benefit (in ) of releasing the factory space?(and briefly explain your answer, or provide a working, 5 marks)

Explain/working: