Reference no: EM132855295

Problem - Belaian Jaya Corp. has the following costs for 150,000 units of component 2:

Direct materials RM28,000

Direct labor 18,500

Mixed overhead 29,000

Variable overhead 15,000

Fixed overhead 30,000

Total RM120,500

Mixed overhead consists of material handling and setup costs. Belaian Jaya Corp. produces the 150,000 units of component 2 in 100 batches of 1,500 units each. Total material handling and setup costs equal fixed costs of RM9,000 plus variable costs of RM200 per batch.

Belaian Jaya Corp. anticipates that next year the 150,000 units of component 2 expected to be sold will be manufactured in 150 batches of 1,000 units each. Variable costs per batch are expected to decrease to RM100. Belaian Jaya Corp. plans to continue to produce 150,000 next year at the same variable manufacturing costs per unit as this year. Fixed costs are expected to remain the same as this year.

Management is considering producing a part it needs component 2 or buying the components produced by Timor-Timor Corp. for RM0.55.

Required -

a. What is the cost per unit for component 2?

b. Should Belaian Jaya Corp. manufacture the part or buy it from Timor-Timor Corp.?

c. What are the qualitative considerations that must be taken into account in the decision?