Required: a. Prepare a schedule that shows the differential costs. b. Should HMP continue to make the fittings or buy them from Rivard Fittings?
Required: a. Prepare a schedule that shows the differential costs. b. Should HMP continue to make the fittings or buy them from Rivard Fittings?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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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:
Materials
Labor
Manufacturing overhead
Total
$7.10
5.50
15.10
$ 27.70
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 $22.10 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 $5.50 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?](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F506c8b63-817a-40bd-a063-bcafc1181c26%2Fec93a0b0-35f6-452f-9f74-0bd23ccbef0b%2F86qnbli_processed.jpeg&w=3840&q=75)
Transcribed Image Text:!
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:
Materials
Labor
Manufacturing overhead
Total
$7.10
5.50
15.10
$ 27.70
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 $22.10 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 $5.50 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?
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