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