Sweet Sugar Crush Sdn Bhd is a supplier of halal food that specialises in manufacturing and...

 

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Sweet Sugar Crush Sdn Bhd is a supplier of halal food that specialises in manufacturing and trading of confectionery. The company produces candy canes which is one of its highly demanded products. The company supplies the candy canes in boxes that contain 6 sticks of the candy canes per box. Given below is the information to produce one box of candy canes: RM 2.25 Direct material: Granulated sugar (30 g) Light corn syrup (1 bottle) Peppermint extracts (5 ml) 1.50 0.15 1.50 2.00 Direct labour Production overhead Total cost 7.40 A quarter of the production overhead cost is fixed in nature with an annual production of 6,000 boxes. Currently, the company purchases one of the main ingredients, which is the light corn syrup, from outside supplier. The supplier has notified Sweet Sugar Crush Sdn Bhd that they must increase the price of the light corn syrup by 180%. The management accountant of Sweet Sugar Crush Sdn Bhd proposes that the company makes its own light corn syrup and below is the information in making one bottle of the light corn syrup: RM Direct material: Corn kernels 0.50 Sugar Vanilla extracts 0.35 0.05 Direct labour Production overhead (50% is variable) 0.13 0.60 Total cost 1.63 In order to make the light corn syrup, Sweet Sugar Crush Sdn Bhd needs to purchase a special refrigerator and a liquid packaging pouch to store it. Each will cost RM4,800 and RM6,600 respectively. The production manager of Sweet Sugar Crush Sdn Bhd informs that if the company makes its own light corn syrup, the company has to use the same workers that currently are producing another product called lollipop. The lollipop production line has to be reduced by 900 boxes in order to make the required light corn syrup. The selling price per box and the variable cost per box of the lollipop are RM1.50 and RM0.30 respectively. Calculate the opportunity cost if Sweet Sugar Crush Sdn Bhd decides to make its own light corn syrup. a. (3 marks) b. i. Compute the relevant cost of making and the relevant cost of buying the light corn syrup. (12 marks) ii. Based on your computation in part (b) (i) above, advise the management of Sweet Sugar Crush Sdn Bhd whether the company should make its own light corn syrup or continue buying the light corn syrup. (2 marks) Sweet Sugar Crush Sdn Bhd is a supplier of halal food that specialises in manufacturing and trading of confectionery. The company produces candy canes which is one of its highly demanded products. The company supplies the candy canes in boxes that contain 6 sticks of the candy canes per box. Given below is the information to produce one box of candy canes: RM 2.25 Direct material: Granulated sugar (30 g) Light corn syrup (1 bottle) Peppermint extracts (5 ml) 1.50 0.15 1.50 2.00 Direct labour Production overhead Total cost 7.40 A quarter of the production overhead cost is fixed in nature with an annual production of 6,000 boxes. Currently, the company purchases one of the main ingredients, which is the light corn syrup, from outside supplier. The supplier has notified Sweet Sugar Crush Sdn Bhd that they must increase the price of the light corn syrup by 180%. The management accountant of Sweet Sugar Crush Sdn Bhd proposes that the company makes its own light corn syrup and below is the information in making one bottle of the light corn syrup: RM Direct material: Corn kernels 0.50 Sugar Vanilla extracts 0.35 0.05 Direct labour Production overhead (50% is variable) 0.13 0.60 Total cost 1.63 In order to make the light corn syrup, Sweet Sugar Crush Sdn Bhd needs to purchase a special refrigerator and a liquid packaging pouch to store it. Each will cost RM4,800 and RM6,600 respectively. The production manager of Sweet Sugar Crush Sdn Bhd informs that if the company makes its own light corn syrup, the company has to use the same workers that currently are producing another product called lollipop. The lollipop production line has to be reduced by 900 boxes in order to make the required light corn syrup. The selling price per box and the variable cost per box of the lollipop are RM1.50 and RM0.30 respectively. Calculate the opportunity cost if Sweet Sugar Crush Sdn Bhd decides to make its own light corn syrup. a. (3 marks) b. i. Compute the relevant cost of making and the relevant cost of buying the light corn syrup. (12 marks) ii. Based on your computation in part (b) (i) above, advise the management of Sweet Sugar Crush Sdn Bhd whether the company should make its own light corn syrup or continue buying the light corn syrup. (2 marks)

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