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Your company currently manufacturing a table for the outdoor entertainment market. A new supplier approached management and offer the same table at a cost of
Your company currently manufacturing a table for the outdoor entertainment market. A new supplier approached management and offer the same table at a cost of R550,00 per unit. Management has asked you to advise them if they should continue manufacturing the table or purchase from the new supplier.You gathered the following information from the office manager.
R per unit R per 5,000 units
Direct material 120,00 600,000.00
Direct labour 345,00 1,725,000.00
Depreciation 25,00 125,000.00
Factory rent 65,00 325,000.00
Variable overhead 75,00 375,000.00
Allocate general overheads 50,00 250,000.00
Total 680,00 3,400,000.00
*There will be no other cost savings.
Required:
Based on the information gathered, advise management if the company should continue manufacturing the table of they should purchase it from the new supplier.
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