Question
WWX Manufacturing Sdn Bhd manufactures and sells computer sets under the brand name AAA. The company has several divisions, one of it is known as
WWX Manufacturing Sdn Bhd manufactures and sells computer sets under the brand name AAA. The company has several divisions, one of it is known as Division A. This division manufactures microchips used in computer. Last year, Division A sold 20,000 microchips. The Division A Income Statement for last year were as follows:
| Total RM | Per unit RM |
Sales | 3,000,000 | 150 |
Less: cost of goods sold | 1,000,000 | 50 |
Gross margin | 2,000,000 | 100 |
Less: selling & distribution costs | 400,000 | 20 |
Divisional income | 1,600,000 | 80 |
As shown above, it costs the Division A RM50 to produce a single microchip. Given below is the breakdown cost structure of the microchip:
| RM |
Direct material | 20 |
Direct labour (RM6 per hour) | 12 |
Factory overhead (50% fixed) | 18 |
Total cost per microchip | 50 |
WWX Manufacturing Sdn Bhd currently operating at full capacity level.
Required:
- If Syarikat ABC, an outside supplier, can offer RM50 per microchip, should WWX Manufacturing S/B accept the offer?
- If WWX Manufactuirng S/B purchases microchip from outside supplier at RM50 per unit, Division A will have an extra capacity of 30%. As a result, the company can launch a new product which will generate extra net income of RM400,000. What is you decision
- Explain the difference between opportunity costs and sunk costs.
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