Peluso Company, a manufacturer of snowmobiles, is operating at 70% of plant capa

Question

Peluso Company, a manufacturer of snowmobiles, is operating at 70% of plant capacity. Peluso's plant manager is considering making the headlights now being purchased from an outside supplier for $15 each. The Peluso plant has idle equipment that could be used to manufacture the headlights. The design engineer estimates that each headlight requires $5.00 of direct materials, $5 of direct labor, and $7.50 of manufacturing overhead. Forty percent of the manufacturing overhead is a fixed cost that would be unaffected by this decision. A decision by Peluso Company to manufacture the headlights should result in a net gain (loss) for each headlight of (Do not round your intermediate calculations): a. $4.50 b. $2.50 c. $2.00 d. $0.50

Explanation / Answer

Total Mfg OH = $7.50 Var Mfg OH = 60%*7.50 = $4.50 Remaing 40% fixed cost will be anyway incurred & hence not relevant for decision making. So Cost pu = DL + DM + Var OH = 5+5_4.50 = 14.50 SO Mfg will resultin Net Gain of 15.00-14.50 = $0.50 pu ......Ans (d)

Related Questions

Navigate

• Browse (All)
• Browse P
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.