Altis Sdn Bhd manufactures and sells breadmaker sets. Recently, the management noticed that the amount of time and resources spent on making one of its components named CX-2 under Division A is increasing. Therefore, Division A is negotiating with another supplier regarding outsourcing component CX-2.

Currently Division A manufactures 20,000 units per annum of the component CX-2. The costs currently assigned to the components are as follows:

Case 1

The above costs are expected to remain unchanged if Division A continues to manufacture the components. The supplier has offered to supply 20,000 components per annum at a guaranteed price of RM18 per unit. If Altis Sdn Bhd outsources component CX-2, no redundancy costs will be incurred for direct labour force. Direct materials and variable overheads are avoidable if component CX-2 is outsourced. Fixed manufacturing overhead costs would be reduced by RM14,500. Assuming the capacity that is required for component CX-2 has no alternative use.

Case 2

Assuming now that the extra capacity that will be made available from outsourcing component CX-2 can be used to manufacture and sell 20,000 units of part B-1 at a price of RM20 per unit. All the labour force required to manufacture component CX-2 would be used to make part B-1. The variable and fixed manufacturing overheads would be the same as the costs incurred for manufacturing component CX-2. The materials required to manufacture component CX-2 would not be required but additional materials required for making part B-1 would cost RM7.50 per unit

a.

As a management accountant, you are required to prepare financial information in evaluating to make or buy decision for;

1. Case 1:By showing total cost of continuing to make, total cost of buying and the different of the relevant cost, stated whether Altis Sdn Bhd should make or buy the component CX- 2.(4 marks)
2. Case 2: By showing total cost to make component CX-2, total cost of buying component CX-2 and total cost of buying component CX-2 with making of part B-1, advise the management which decision should they undertake.(4 marks)

b. The production manager of Altis Sdn Bhd recently said:

'Qualitative factors do not play an important role in relevant cost analysis. We should focus more on quantitative factors as outcomes can be measured innumerical terms.'

With reference to the production manager's statement above, please provide yourcomments by stating the relevancies of the quantitative and qualitative factors for flexibility in making decision related to cost analysis. Give an example to illustrate your answer.

(8 marks)