Power Bhd manufactures electronic scooter, known as T-tech, by purchasing its major switch components, from Luxer Sdn Bhd at a price of RM45 per unit. Power Bhd also pays the transportation costs of the switch, RM4,000.

Power Bhd will be producing 5,000 units of T-tech for the coming year and is considering

making the controller internally.

The costs to produce one unit of the controller are as follow:

Direct materials RM12

Direct labour (RM4 per hour) RM10

Production overhead (applied based on direct labour hour) RM17

Additional costs of RM12,000 will be incurred by Power Bhd to check and monitor the

production process if the switch is produced internally.

The materials used to make the switch are currently being used to make another product, a

robotic toy. Materials required to make each switch is 1 kg whilst to make each robotic toy

requires 2.5 kg materials. Materials are in short supply and a total of 6000 kg would be

available for the coming year.

The following data relate to the selling price and costs for one unit of robotic toy:

Selling price RM 100

Direct materials RM 36

Direct labour (RM4 per hour) RM 20

Production overhead (applied based on direct labour hour) RM 34

The anticipated production for the year is 20,000 direct labour hours. Fixed production overhead for the year is budgeted at RM96,000. Production overheads are absorbed based

on direct labour hour.

Required:

a) Compute the opportunity cost if Power Bhd decides to manufacture the switch.

(4 marks)

b) Compute the relevant cost of making and relevant cost of buying the switch.

(5 marks)

c) Compare and select the best decision based on your answer on (b) above (2 marks)

d) List TWO (2) qualitative factors in order to make or buy decision (4 marks)

(Total :15 marks)