Question
15. 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
15.
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 $25 each. The Peluso plant has idle equipment that could be used to manufacture the headlights. The design engineer estimates that each headlight requires $7.50 of direct materials, $10 of direct labor, and $11.25 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):
| $7.75 |
| $3.00 |
| $0.75 |
| $(3.75) |
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