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) Unit cost (RM) Direct materials 144,000 12 Direct labour 120,000 10 Variable manufacturing overhead (power and utilities) Fixed manufacturing overhead 12,000 1 96,000 8 Share of non-manufacturing overhead 60,000 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: a. Recently, a supplier has offered to supply 12,000 components per annum at a price of RM30 per unit guaranteed for three years. If KL Mobile outsources component X, fixed manufacturing overhead costs would reduce by RM10,000 per annum but non-manufacturing overhead would remain unchanged. The capacity that is required for component X has no alternative use. Should the division of KL Mobile make or buy the component? Support your answers by giving necessary computations.
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) Unit cost (RM) Direct materials 144,000 12 Direct labour 120,000 10 Variable manufacturing overhead (power and utilities) Fixed manufacturing overhead 12,000 1 96,000 8 Share of non-manufacturing overhead 60,000 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: a. Recently, a supplier has offered to supply 12,000 components per annum at a price of RM30 per unit guaranteed for three years. If KL Mobile outsources component X, fixed manufacturing overhead costs would reduce by RM10,000 per annum but non-manufacturing overhead would remain unchanged. The capacity that is required for component X has no alternative use. Should the division of KL Mobile make or buy the component? Support your answers by giving necessary computations.
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)
Unit cost
(RM)
Direct materials
144,000
12
Direct labour
120,000
10
Variable manufacturing overhead
(power and utilities)
Fixed manufacturing overhead
12,000
1
96,000
8
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:
a. Recently, a supplier has offered to supply 12,000 components per annum at a price of RM30
per unit guaranteed for three years. If KL Mobile outsources component X, fixed
manufacturing overhead costs would reduce by RM10,000 per annum but non-manufacturing
overhead would remain unchanged. The capacity that is required for component X has no
alternative use.
Should the division of KL Mobile make or buy the component? Support your answers by
giving necessary computations.
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