QUESTION 4 (20 MARKS : 48 MINUTES)

A.Corona Enterprise (CE) produces a variety of herbs from processing 1 ton of Krypton, a rare mineral. Material and processing costs total RM60,000 per ton, where 1/4 of its are allocated to product C19. About 7,000 units of product C19 are produced from each ton of Krypton. The units can either be sold at the split-off point for RM9.00 each, or processed further at a total cost of RM9,500 and then be sold RM12.00 each.

On the other hand, CE also processes the other 3/4 of ton of krypton to produce herbs for use in cosmetic products. However, there is an outside supplier has offered to sell the herb to CE at a price of RM35 per unit. CE is currently producing the herb at 15,000 units. To evaluate this offer, CE has gathered the following cost information as if the herb is produced internally.

#+ RM unit RM/15.000 herb unit herbs Direct materials (Krypton) 14 210,000 Direct labour 10 150,000 Variable manufacturing overhead 3 45.000 Fixed manufacturing overhead, traceable 6* 90,000 Fixed manufacturing overhead, allocated 9 135,000 Total cost 42 630.000