Harbortown Marine Products (HMP) manufactures and sells various fixtures for boat cabins One fixture uses a specialized fitting that is not used in any other HMP product. The management of HMP has considered outsourcing the fitting for several years but has never identified a suitable supplier HMP has collected the following data on the cost of the fitting
Materials
Labor
56.40 4.80
Manufacturing overhead 14,40
Total
25.60
Rivard Fittings, a local auto supplier. contacts HMP and tells them that because of the loss of one
of Rivard's customers, there is enough capacity to produce up to 5.000 units of the fitting
monthly Rivard has offered to sell HMP any quantity (up to 5 000 units monthly) at a price of $20
per fitting
If Rivard supplies all of the 3,000 fittings currently produced by HMP HMP Walt avoid all of the variable avemead associated with the fiting and one third of the fixed overhead. Management estimates that variable overhead for the fitting is $4.80 per unit.
Required: a. Prepare a schedule that shows the differential costs.
b. Should HMP continue to make the fittings or buy them from Riverd Fittings?
