Electric Scooter Co. makes motorized scooters for city commuters. The scooters can be charged using a regular household plug, and the batteries 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.
Required:
Should Electric Scooter make the headlights in-house?