Ali Ltd and Baba Ltd are two major players in the global market. Ali Ltd has always
Question:
Ali Ltd and Baba Ltd are two major players in the global market. Ali Ltd has always been manufacturing its components called ANT10 in-house. However, Baba Ltd recently offered to supply the ANT10 to Ali Ltd at a price of $87. Ali Ltd uses 1,800 units of ANT10 annually. The cost of production of ANT10 is as follows:
Direct material $30.00
Direct labour $10.00
Variable overhead $5.00
Fixed overhead $68.00
Total $113.00
Assume that there is no opening or closing stocks of ANT10 in this scenario.
Required:
(a) Using relevant costing principles, prepare an analysis showing whether Ali Ltd
should outsource the 1,800 units of ANT10 to Baba Ltd if 65% of fixed overhead can be avoided when Ali Ltd stops producing ANT10 in-house.
(b) List and explain TWO (2) qualitative factors that Ali Ltd should consider before outsourcing to Baba Ltd.
Managerial Accounting The Cornerstone Of Business Decision Making
ISBN: 9780357715345
8th Edition
Authors: Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger