MODUL AA025 (STUDENTS VERSION)

AA025: ACCOUNTING MODULE 2021/2022

The price for buying the seedling from an outside supplier is RM8. If purchased from outside,
BSB can reduce the fixed cost of RM2,000.

Required:
Provide an analysis to determine whether BSB needs to buy the seedlings or to plant its own
seeds.

QUESTION 8 (C2, C3)
Dasuki Sdn Bhd (DSB) produces hats for children with decorative buttons. Each hat needs
one button. DSB is considering between 2 alternatives, (i) making the decorative buttons or
(ii) buying them from suppliers.

If DSB makes its own decorative buttons, the following costs will be incurred:

Direct materials RM
Direct labour 3.50 per unit
Variable overhead 1.75 per unit
Fixed overhead 0.95 per unit

55,000

The fixed overhead includes annual depreciation of RM12,000 of a machine which has a book
value of RM24,000. The normal production capacity is 50,000 units.

If DSB buys the decorative buttons from suppliers, the purchase cost is RM5.50 per unit. The
existing facilities for producing these decorative buttons can be sold to third parties at a price
of RM25,000.

Required:
i. Provide an analysis to decide whether or not DSB makes its own or purchase the

decorative buttons from the supplier.
ii. Explain two (2) qualitative factors that DSB needs to consider when buying the

decorative buttons from suppliers.

QUESTION 9 (C4)
Jiwaku Company must decide whether to make or buy some of its components for the
appliances it produces. The costs of producing 166,000 electrical cords for its appliances are
as follows:

Direct materials RM90,000
Variable overhead RM32,000
Direct labour RM20,000
Fixed overhead RM24,000

COMPILED BY : SYIRLEEN ADLYNA OTHMAN 147

AA025: ACCOUNTING MODULE 2021/2022

Instead of making the electrical cords at an average cost per unit of RM1.00, the company
has an opportunity to buy the cords at RM0.90 per unit. If the company purchase the cords,
all variable costs and one-fourth of the fixed costs are eliminated.

Required:
Should the company make or buy the electrical cords? Why?

QUESTION 10 (C4)
De Klerk Ltd manufactures a particular type of handbags. It is operating below its full
capacity. The following results for the year will be as follows:

Sales (20,000 bags) RM RM
Variable production cost 20,000
Fixed production cost 10,000
6,250 19,250
Total production cost 750
Selling cost 16,250
3,000
Total cost

Net profit

A direct seller offers to purchase 5,000 bags at RM0.75 per bag. The company is unwilling to
accept the order because it is not only below the selling price but also below its unit
production cost. Should the order be accepted?

QUESTION 11 (C4)
The following data relates to McGraw-Hill Publishing Co. Ltd., printing and publishing books:

Production and Sales 50,000 copies
Fixed cost (common) RM750,000
Cost per book (RM)
Paper cost
Printing cost 70
Binding cost 30
Other variable overhead 10
Variable cost of each book 10
Fixed cost per book (750,000/50,000)
120
15

135

COMPILED BY : SYIRLEEN ADLYNA OTHMAN 148

AA025: ACCOUNTING MODULE 2021/2022

A KL based printer has offered to print the required quantity of books at RM125 each. The
production facility of the company will remain idle if books are printed from outside. Should
the company make or buy the book?

QUESTION 12 (C4)
Watershoe, Inc., a manufacturer of diving equipment, has been asked to sell 1,000 pairs of
flippers to a discount sporting goods shop in Sandakan for RM100 per pair. Watershoe would
not put its name on this special order, and the dealer would therefore sell the flippers below
their normal retail price. The capacity for Watershoe is 25,000 pairs of flippers per year. The
company’s sales forecast for this year, excluding the special order, is 20,000 pairs at a selling
price of RM143.75 per unit. Watershoe’s budgeted income statement is:

Budgeted Income Statement

Sales revenue (20,000 pairs) Per unit Total
143.75 2,875,000

Cost of goods sold

Direct materials 37.50 750,000
Direct labour 31.10 622,000
689,000
Factory overhead (40% variable) 34.45

Total 103.05 2,061,000
814,000
Gross Profit 40.70 550,000
Selling and administrative expenses 27.50 264,000

Net income 13.20

The only variable portion of the selling and administrative expenses is a 12% commission
on sales, while would not be paid on the special order.

Required:
Should Watershoe accept the special order at RM100 a pair even though the average cost to
produce and sell a pair of flipper is RM130.05 (RM103.05 + RM27.50)?

COMPILED BY : SYIRLEEN ADLYNA OTHMAN 149