Required information

Exercise $4-39$ and $4-40($Algo$)($LO $4-4)$

$[$The following information applies to the questions displayed below.$]$

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 them that because of the loss of one 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 $$22\mathrm{.}10$ per fitting.

If Rivard supplies all of the $3,280$ 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 $$5\mathrm{.}50$ per unit.

Exercise $4-39($Algo$)$ Make$-$or$-$Buy Decisions $($LO $4-4)$

Required:

a$.$ Prepare a schedule that shows the differential costs.

b$.$ Should HMP continue to make the fittings or buy them from Rivard Fittings?