Adan Sdn Bhd (ASB) operates in a large town area. Currently, ASB has its own factory to produce butter cookies. The unit cost to produce the butter cookies are as follows: Raw materials 0.4 Direct labour 0.5 Variable overhead 0.3 Fixed overhead 0.6 Total 1.8 Fixed overhead is detailed as follows: Avoidable fixed overhead 2,000 Depreciation of equipment 1,000 A local manufacturer has offered to supply ASB all the butter cookies it needs. Its price is RM1.70. If the offer is accepted, the equipment used by ASB would be scrapped (it is old and has no market value). ASB produce 5,000 butter cookies per month. Required: Analyze and determine whether ASB should continue to make its own butter cookies or to purchase from the external supplier.
Adan Sdn Bhd (ASB) operates in a large town area. Currently, ASB has its own factory to produce butter cookies. The unit cost to produce the butter cookies are as follows: Raw materials 0.4 Direct labour 0.5 Variable overhead 0.3 Fixed overhead 0.6 Total 1.8 Fixed overhead is detailed as follows: Avoidable fixed overhead 2,000 Depreciation of equipment 1,000 A local manufacturer has offered to supply ASB all the butter cookies it needs. Its price is RM1.70. If the offer is accepted, the equipment used by ASB would be scrapped (it is old and has no market value). ASB produce 5,000 butter cookies per month. Required: Analyze and determine whether ASB should continue to make its own butter cookies or to purchase from the external supplier.
Chapter1: Financial Statements And Business Decisions
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Transcribed Image Text:Adan Sdn Bhd (ASB) operates in a large town area. Currently, ASB has its own factory to
produce butter cookies. The unit cost to produce the butter cookies are as follows:
Raw materials
0.4
Direct labour
0.5
Variable overhead
0.3
Fixed overhead
0.6
Total
1.8
Fixed overhead is detailed as follows:
Avoidable fixed overhead
2,000
Depreciation of equipment
1,000
A local manufacturer has offered to supply ASB all the butter cookies it needs. Its price is
RM1.70. If the offer is accepted, the equipment used by ASB would be scrapped (it is old and
has no market value). ASB produce 5,000 butter cookies per month.
Required:
Analyze and determine whether ASB should continue to make its own butter cookies or to
purchase from the external supplier.
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