Peluso Company,a Manufacturer of Snowmobiles,is Operating at 70% of Plant

Multiple Choice

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 $11 each.The Peluso plant has idle equipment that could be used to manufacture the headlights.The design engineer estimates that each headlight requires $4 of direct materials,$3 of direct labor,and $6.00 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:

A) $(2.00)
B) $1.60
C) $0.40
D) $2.80