PSPM 2020/2021 QUESTION 4 (a) Pine Oak Sdn Bhd (POSB) produces PQR components used in its products. The annual production of PQR is 40,000 units. The cost per unit of PQR is as follows: Items Direct materials Direct labour Variable manufacturing overhead Fixed manufacturing overhead RM 23.40 22.30 1.40 24.60 71.70 (b) Cost per unit A company bids to supply PQR required by POSB for a price of RM59.20 per unit. If POSB accepts this offer, the division of the plant used to make PQR can be used to produce a new component SNP. Additional contribution margins of SNP are RM352,000 per year. However, the fixed manufacturing overhead cost of RM21.90 per unit continues to be incurred if PQR is purchased from the supplier. Required: Prepare relevant costing using differential analysis approach to determine whether POSB should make or buy PQR components. Justify your answer. (Answer: POSB should make PQR because the net income will increase by RM24,000) [12 marks] Cengal Sdn Bhd (CSB) produces 100,000 electric kettles per month, which is 70% of plant capacity. Variable manufacturing costs are RM35 per unit. Fixed manufacturing costs are RM500,000 or RM5 per unit. The electric kettles are normally sold directly to retailers at RM55 each. Resak Enterprise (RE), a wholesaler offers to purchase an additional 5,000 electric kettles at RM50 per unit. Acceptance of the offer would not affect normal sales of the product. The additional units can be manufactured without increasing plant capacity. CSB is willing to accept this offer if the additional contribution margin reaches RM25,000 and above.. Required: Prepare relevant costing using contribution margin analysis to determine whether CSB should accept or reject the order from RE. justify your answer. (Answer: CSB should accept the order because the additional contribution margin reach more than RM25,000) [8 marks]