Salmi Sdn Bhd (SSB) operates in a large town area. Currently, SSB has its own factory...

 

Transcribed Image Text:

Salmi Sdn Bhd (SSB) operates in a large town area. Currently, SSB has its own factory to produce butter cookies. The unit cost to produce the butter cookies are as follows: Raw materials Direct labour Variable overhead RM Avoidable fixed overhead Depreciation of equipment 0.4 0.5 0.3 0.6 1.8 Fixed overhead Total Fixed overhead is detailed as follows: RM 2,000 1,000 A local manufacturer has offered to supply SSB all the butter cookies it needs. Its price is RM1.70. If the offer is accepted, the equipment used by SSB would be scrapped (it is old and has no market value). SSB produce 5,000 butter cookies per month. Required: Analyze and determine whether SSB should continue to make its own butter cookies or to purchase from the external supplier. (5 Marks) Salmi Sdn Bhd (SSB) operates in a large town area. Currently, SSB has its own factory to produce butter cookies. The unit cost to produce the butter cookies are as follows: Raw materials Direct labour Variable overhead RM Avoidable fixed overhead Depreciation of equipment 0.4 0.5 0.3 0.6 1.8 Fixed overhead Total Fixed overhead is detailed as follows: RM 2,000 1,000 A local manufacturer has offered to supply SSB all the butter cookies it needs. Its price is RM1.70. If the offer is accepted, the equipment used by SSB would be scrapped (it is old and has no market value). SSB produce 5,000 butter cookies per month. Required: Analyze and determine whether SSB should continue to make its own butter cookies or to purchase from the external supplier. (5 Marks)

Answer rating: 100% (QA)

To determine whether SSB should continue producing its own butter cookies or accept the offer from the local manufacturer we need to compare the costs of the two options Option 1 SSB produces its own ... View the full answer