Question 2 Pisang Berhad produces 500,000 switches per year with the following costs: (For the production of 500,000 switches) RM Direct materials 1,000,000 Direct labour 750,000 Variable manufacturing expenses 300,000 450,000 Fixed manufacturing expenses Total cost 2,500,000 RM5/unit Cost/per unit RM2,500,000/500,000 units + A supplier has approached the company, and offered the switches at RM4 per unit. Should the company decided to purchase from the supplier, the company need to employ an incoming quality controller with a salary of RM70,000 per annum. Other than this, all the other fixed manufacturing expenses will remain unchanged. Required: a) Should Pisang Berhad continue with the production of switches internally, or to purchase the switches from the external supplier? Support your answer with appropriate calculations. b) Will your answer change if the facilities freed up by the company can be used to do alternative works that will contribute an annual profit of RM50,000? Why? c) Discuss the qualitative factors that the management should consider before deciding to make or to buy.
Process Costing
Process costing is a sort of operation costing which is employed to determine the value of a product at each process or stage of producing process, applicable where goods produced from a series of continuous operations or procedure.
Job Costing
Job costing is adhesive costs of each and every job involved in the production processes. It is an accounting measure. It is a method which determines the cost of specific jobs, which are performed according to the consumer’s specifications. Job costing is possible only in businesses where the production is done as per the customer’s requirement. For example, some customers order to manufacture furniture as per their needs.
ABC Costing
Cost Accounting is a form of managerial accounting that helps the company in assessing the total variable cost so as to compute the cost of production. Cost accounting is generally used by the management so as to ensure better decision-making. In comparison to financial accounting, cost accounting has to follow a set standard ad can be used flexibly by the management as per their needs. The types of Cost Accounting include – Lean Accounting, Standard Costing, Marginal Costing and Activity Based Costing.
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