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Question 3 The Desert Oasis Company is a manufacturer of clothing that sells its output directly to clothing retailers. One of its departments manufactures t-shirts. The department has a production capacity of 50,000 t-shirts per month. Because of the liquidation of one of its major customers, the company has excess capacity. For the next quarter, current monthly production and sales volume is expected to be 35,000 t-shirts at selling price of RM40 per t-shirt. Expected costs and revenues for the next month at an activity level of 35,000 t-shirts are as follows: RM RM Direct labour 420.000 12 Direct materials 280.000 Variable manufacturing overheads 70.000 Manufacturing non-variable overheads 280.000 co Marketing and distribution costs 105.000 Total costs 1,155,000 33 Sales 1,400.000 40 Profit 245,000 7Required: (a) Desert Oasis is expecting an upsurge in demand and considers that the excess capacity is temporary. A company in the leisure industry has offered to buy for its staff 3,000 t-shirts each month for the next three months at a price of RM20 per t-shirt. The company would collect the t-shirts from Desert Oasis' factory and thus no marketing and distribution costs will be incurred. No subsequent sales to this customer are anticipated. The company would require its company logo inserting on the t-shirt and Desert Oasis has predicted that this will cost RM1 per t-shirt. Should Desert Oasis accept the offer from the company? Provide detail explanation and calculation to support your answer. (12 marks) (b) Assume that there never was an upsurge in demand and it remains at 35,000 t-shirts per month. Desert Oasis has a productive capacity of 50,000 t-shirts a month, requiring the company to seek new markets for the remaining 15,000 t-shirts. As a result of the success with the above one-time special order, Desert Oasis has managed to attract a new potential customer who is prepared to enter into a contractual agreement for a three-year period for a supply of 15,000 t-shirts per month at an agreed price of RM25 per t-shirt. The cost of inserting the insignia required by each customer would remain unchanged at RM1 per t-shirt. No marketing and distribution costs would be incurred with any of the orders. Should DesertOasis enter into this contractual agreement? Provide detail explanation and calculation to support your answer. (13 marks) (Total 25 marks)