23. The Blue Plate Co. is operating at 50% capacity producing 100,000 units of ceramic plates a year. With the economic boom that the country is expected to have in the coming year, the company plans to utilize 75% capacity. Part of the manufacturing process is hand-painting which has a variable cost of material at P4.50 and labour at P5.50 per plate. This painting process has variable overhead at P1.00 which is 40% of total variable factory overhead. Total factory overhead is P500 per 100 plates. No increase in fixed factory overhead is expected even with the substantial increase in production. An offer to sub-contract the incremental hand-painting job was given at P10.50 per plate but the company will have to lease an equipment at P 10,000 annual rental. The plates sell for P50.00 per plate a piece at the contribution margin rate of 45%. Should Blue Plate Company sub-contract? Why? A. No, because the company will lose P 135,000. B. Yes, because the company will save P 65,000. C. Yes, because the company will earn P 15,000 more. D. No, because there is no benefit for the company.
23. The Blue Plate Co. is operating at 50% capacity producing 100,000 units of ceramic plates a year. With the economic boom that the country is expected to have in the coming year, the company plans to utilize 75% capacity. Part of the manufacturing process is hand-painting which has a variable cost of material at P4.50 and labour at P5.50 per plate. This painting process has variable overhead at P1.00 which is 40% of total variable factory overhead. Total factory overhead is P500 per 100 plates. No increase in fixed factory overhead is expected even with the substantial increase in production. An offer to sub-contract the incremental hand-painting job was given at P10.50 per plate but the company will have to lease an equipment at P 10,000 annual rental. The plates sell for P50.00 per plate a piece at the contribution margin rate of 45%. Should Blue Plate Company sub-contract? Why? A. No, because the company will lose P 135,000. B. Yes, because the company will save P 65,000. C. Yes, because the company will earn P 15,000 more. D. No, because there is no benefit for the company.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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Transcribed Image Text:23. The Blue Plate Co. is operating at 50% capacity producing 100,000 units of ceramic plates a
year. With the economic boom that the country is expected to have in the coming year, the
company plans to utilize 75% capacity. Part of the manufacturing process is hand-painting which
has a variable cost of material at P4.50 and labour at P5.50 per plate. This painting process has
variable overhead at P1.00 which is 40% of total variable factory overhead. Total factory overhead
is P500 per 100 plates. No increase in fixed factory overhead is expected even with the
substantial increase in production. An offer to sub-contract the incremental hand-painting job was
given at P10.50 per plate but the company will have to lease an equipment at P 10,000 annual
rental. The plates sell for P50.00 per plate a piece at the contribution margin rate of 45%.
Should Blue Plate Company sub-contract? Why?
A. No, because the company will lose P 135,000.
B. Yes, because the company will save P 65,000.
C. Yes, because the company will earn P 15,000 more.
D. No, because there is no benefit for the company.
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