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.

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter13: The Balanced Scorecard: Strategic-based Control

Section: Chapter Questions

Problem 8E: Hatch Manufacturing produces multiple machine parts. The theoretical cycle time for one of its...

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Hatch Manufacturing produces multiple machine parts. The theoretical cycle time for one of its products is 65 minutes per unit. The budgeted conversion costs for the manufacturing cell dedicated to the product are 12,960,000 per year. The total labor minutes available are 1,440,000. During the year, the cell was able to produce 0.6 units of the product per hour. Suppose also that production incentives exist to minimize unit product costs. Required: 1. Compute the theoretical conversion cost per unit. 2. Compute the applied conversion cost per minute (the amount of conversion cost actually assigned to the product). 3. Discuss how this approach to assigning conversion cost can improve delivery time performance. Explain how conversion cost acts as a performance driver for on-time deliveries.
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