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 $ 6.45 Labor 4.85 Manufacturing overhead 14.45 Total $ 25.75 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 $20.15 per fitting. If Rivard supplies all of the 3,020 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 $4.85 per unit. Harbortown management is concerned about future changes in material prices arising from volatility in the commodities market. Required: At what unit costs for materials would HMP be just indifferent between making and buying the 3,020 units of the fitting if all other costs remain as predicted?
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 | $ 6.45 |
|---|---|
| Labor | 4.85 |
| Manufacturing overhead | 14.45 |
| Total | $ 25.75 |
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 $20.15 per fitting.
If Rivard supplies all of the 3,020 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 $4.85 per unit.
Harbortown management is concerned about future changes in material prices arising from volatility in the commodities market.
Required:
At what unit costs for materials would HMP be just indifferent between making and buying the 3,020 units of the fitting if all other costs remain as predicted?
Trending now
This is a popular solution!
Step by step
Solved in 2 steps
