Electric Scooter Co. makes motorized scooters for city commuters. The scooters c

Question

Electric Scooter Co. makes motorized scooters for city commuters. The scooters can be charged using a regular household plug, and the batterie:s hold their charge for 24 hours. The manufacturing plant is currently operating at 70% capacity. The plant manager is considering manufacturing headlights for the scooters, which are currently being produced by an outside company and purchased by Electric Scooter for $11 each. Electric Scooter has the equipment and the workforce to produce the headlights. The engineers have suggested a variable cost of $3 in direct labour and $4 in direct materials. The plant overhead rate is 200% of direct labour dollars, and 40% of the overhead is fixed cost. Requirea: 1-a.Calculate the incremental profit to producing the one headlight. (Do noft round intermediate calculation and round your final answer to 2 decimal places.) ncremen rofit headlight 1-b.Should Electric Scooter make the headlights in-house? O Yes No

Explanation / Answer

1a) Calculate incremental profit per headlight :

Incremental profit = 0.40 per headlight

1b) Yes Electric scooter should make the headlight in house

Make Buy Direct material 4 Direct labour 3 Variable overhead (3*200%*60%) 3.6 Purchase cost 11 Total relevant cost 10.6 11

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