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Frank manufactures wine barrels and supplies it to wine farms in the Stellenbosh and Franschhoek area
Frank manufactures wine barrels and supplies it to wine farms in the Stellenbosh and Franschhoek area.
| Frank is considering the possibility of outsourcing the manufacturing of wine barrels to an outside party, rather than self-manufacturing. Currently, the following information is available: |
| Total manufacturing cost for the manufacturing of one wine barrel | R | 450 | per barrel |
| Number of wine barrels in inventory | 152 | ||
| Rand value of wine barrels currently in inventory | R | 68,400 | |
| Current standing orders for new wine barrels not yet supplied to customers | 280 | wine barrels | |
| Selling price per wine barrel | R | 900 | |
| Proposed cost for a wine barrel if supplied by the outsourcer | R | 400 | per barrel |
| Required: | |
| 1. | What is the total differential cost of outsourcing wine barrels per wine barrel? |
Expert Solution
Total differential cost of outsourcing wine barrels per wine barrel = Total manufacturing cost for the manufacturing of one wine barrel - Proposed cost for a wine barrel if supplied by the outsourcer
= R450 - R400
= R50 per barrel
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