Peluso Co, a manufacturer of snowmobiles, is operating at 72% of plant capacity.

Question

Peluso Co, a manufacturer of snowmobiles, is operating at 72% of plant
capacity. Peluso’s plant manager is considering manufacturing
headlights, which are now being purchased for $11 each. The Peluso
plant has the equipment and labor force required to manufacture the
headlights. The design engineer estimates that each headlight
requires $4 of direct materials and $3.75 of direct labor. Peluso’s
plant overhead rate is 190% of direct labor dollars, and 40% of the
overhead is fixed costs.

If Peluso manufactures the headlight, how much gain or loss per
headlight will result?

Explanation / Answer

11- 4-3.75- .60*3.75*1.9= .35 loss per headlight

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