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Almond Delites manufactures various types of biscuits. FMF Biscuits Ltd has approached Almond Delites with a proposal to sell the company its top-selling biscuit at

Almond Delites manufactures various types of biscuits. FMF Biscuits Ltd has approached Almond Delites with a proposal to sell the company its top-selling biscuit at a price of $22 000 for 20 000 units. The costs shown are associated with the production of 20 000 units of almond biscuits:

Direct materials $12,000

Direct labour $ 5,000

Manufacturing overhead $ 8,000

Total cost $25,000

The manufacturing overhead consists of $2 000 of variable costs, with the balance being allocated to fixed costs. Assume that 40% of the fixed costs would be avoidable if the almond biscuits were purchased externally rather than produced internally.

  1. Should Almond Delites make or buy the almond biscuit?
  2. What qualitative factors should Almond Delites consider before making its decision?

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