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Tongkat Ali Sdn Bhd makes 1000 litres of a chemical C for use in its...

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Accounting

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Tongkat Ali Sdn Bhd makes 1000 litres of a chemical C for use in its Tongkat Ali vitamin supplements. Data concerning the unit production cost of the chemical is as follows: Direct Materials Direct Labour Variable Manufacturing Overhead Fixed Manufacturing Overhead Total Manufacturing Cost per unit *** @ $342 80 48 520 990 An outside supplier has offered to sell Tongkat Ali all of the chemicals it requires. If Tongkat Ali decides to discontinue making the chemicals, 20% of the above fixed manufacturing overhead could be avoided. Required: a. Assume Tongkat Ali has no alternative use for the facilities presently devoted production of the chemical. If the outside supplier offers to sell the chemical for $850 each, should Tongkat Ali accept the offer. Fully support your answer with appropriate calculations. b. Assume that Tongkat Ali could use the presently devoted to production of the chemical to expand production of another product that would yield an additional contribution margin of $50,000 annually. What is the maximum price Tongkat Ali should be willing to pay the outside supplier

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