Huntington Products manufactures 10,000 units of Part M-l annually for use in its production. The following costs are reported:
Direct materials ................................................................. $ 20,000
Direct labor ..................................................................... 55,000
Variable factory overhead .................................................... 45,000
Fixed factory overhead ....................................................... 70,000
$190,000
Lufkin Company has offered to sell Huntington 10,000 units of Part M-l annually for $18 per unit. If Huntington accepts the offer, some of the facilities presently used to manufacture Part M-l could be rented to a third party at an annual rental of $15,000. Additionally, $4 per unit of the fixed factory overhead applied to Part M-l would be totally eliminated.
Required: Should Huntington accept Lufkin's offer? Explain.