QUESTION 3 (25 MARKS) A. Santai Sdn. Bhd. is a company that produces body lotion for domestic and overseas market. One of its products is 'Harum' that is sold to wholesalers in a bottle, with a price of RM8 per bottle. The company manufactures 100,000 bottles of 'Harum' every year and there is a fixed cost of RM90,000 charge to the manufacturing overhead annually. The manufacturing cost of product 'Harum' including the cost of the bottle is as follows: make or buy Direct materials Direct labour Manufacturing overhead Total unit cost RM 3.60 2.00 1.40 7.00 As an alternative to making the bottle internally, Santai Sdn. Bhd. can purchase the empty bottles from an outside supplier at a price of RM1.35 per bottle. If Santai Sdn. Bhd. accept the purchase proposal, the direct labour and variable manufacturing overhead costs per bottle would be reduced by 10% and the direct materials would be reduced by 25%. In view of this, the Purchasing Manager suggested the company to buy the bottles from the outside supplier. Required: the company i. Based on the relevant cost concept, advice Santai Sdn. Bhd. on whether the bottles of 'Harum' should be purchased from outside supplier. Prepare workings to support your decision. should incike the product (9 marks) ii. A revised sales order shows an estimation of sales volume of 120,000 bottles of 'Harum'. However, additional equipment must be acquired to manufacture the extra bottles at an annual rental of RM40,000. Advise the management of Santai Sdn. Bhd. on whether to make or buy the bottles of 'Harum'. Prepare the relevant cost analysis to support your decision. the company should bing in bottle. 4 marks) CONFIDENTIAL/4