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 $31 each. The Peluso plant has idle equipment that could be used to manufacture the headlights. The design engineer estimates that each headlight requires $9.00 of direct materials, $13 of direct labor, and $13.50 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): $(4.50) $9.70 $0.90 $3.60

Explanation / Answer

Saving in cost on account of manufacturing Amount Cost of purchase from supplier 31 Less: Direct Material per unit 9 less: direct labor 13 less: variable manufacturing overheads 8.1 = 60 % of 13.50 Net Gain for each headlight will be 0.90 Fixed part of manufacturing overhead is not to be considered as it remains unaffected whether we produce or purchase headlights Answer is option c = $ 0.90 per headlight

Related Questions

Navigate

• Browse (All)
• Browse P
• Subjects

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