Now, the company have an alternative to outsourcing the production at RM 3.08 per unit to another manufacturer. As a production manager of the company, you have to suggest to the top management whether or not to outsource the production to another manufacturer through differential analysis.

If the company decide to outsource the production of Product Z, the existing manufacturing could be utilized by producing a new product, Product Y that could contribute RM25,000 increment in revenues. Again, you have to suggest to the top management whether or not to outsource the production to another manufacturer through the differential analysis.

TABLE 3 below provided the details of manufacturing costs to produce 50,000 units of Product Z. TABLE 3 Items Production costs (RM) Direct Materials 75,000.00 Direct Labor 25,000.00 Variable Manufacturing overhead costs 37,500.00 Fixed Manufacturing overhead costs 15,000.00 Administration costs 12,500.00 Total Costs 165,000.00