KL Mobile is a major producer of automobiles in Kuala Lumpur. One of the divisions within KL Mobile is currently negotiating with another supplier regarding outsourcing component X that it manufactures. The division currently manufactures 12,000 units per annum of the component. The costs currently assigned to the component are as follows.
KL Mobile is a major producer of automobiles in Kuala Lumpur. One of the divisions within KL Mobile is currently negotiating with another supplier regarding outsourcing component X that it manufactures. The division currently manufactures 12,000 units per annum of the component. The costs currently assigned to the component are as follows.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:KL Mobile is a major producer of automobiles in Kuala Lumpur. One of the divisions within KL
Mobile is currently negotiating with another supplier regarding outsourcing component X that it
manufactures. The division currently manufactures 12,000 units per annum of the component.
The costs currently assigned to the component are as follows.
Total costs of producing
12,000 components
_(RM)
144,000
Unit cost
(RM)
Direct materials
12
Direct labour
120,000
10
Variable manufacturing overhead
(power and utilities)
Fixed manufacturing overhead
12,000
1
96,000
Share of non-manufacturing overhead
60,000
5
Total cost
432,000
36
Note:
The above costs are expected to remain unchanged in the foreseeable future if KL Mobile
continues to manufacture the components.
Required:
b. Assume now that the extra capacity that will made available from outsourcing component X
can be used to manufacture and sell 12,000 units of component Z at a price of RM34 per unit.
All the labour force required to manufacture component X would be used to make component
Z. The variable manufacturing overhead, the fixed manufacturing overheads and non-
manufacturing overhead would be the same as the costs incurred for manufacturing
component X. The material required
additional materials required for making component Z would cost RM13 per unit.
manufacture component X would not be required but
Should KL Mobile outsource component X and produce component Z? Justify your answers
by giving necessary computations.
c. Briefly explain TWO (2) examples of costs that are not relevant in decision making process.
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