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:

Rivard Fittings, a local auto supplier, contacts HMP and tells it 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 will avoid all of the variable overhead associated with the fitting and one-third of the fixed overhead. Management estimates that variable overhead for the fitting is $4.80 per unit. 

Required

Should HMP continue to make the fittings or buy them from Rivard Fittings? Prepare a schedule that shows the differential costs. 

Transcribed Image Text:

Materials...... Labor Manufacturing overhead Total..... $6.40 4.80 14.40 $25.60