Climb Climate Control Inc. manufactures a variety of heating and air-conditioning units. The company is currently manufacturing all of its own component parts. An outside supplier has offered to sell a thermostat to Climb Climate Control for $20 per unit. To evaluate this offer, Climb Climate Control has gathered the following information relating to its own cost of producing the thermostat internally.

Per Unit 15,000 units per Year

Direct Materials $6.00 $90,000

Direct Labor $8.00 $120,000

Variable Overhead $1.00 $15,000

Fixed Overhead $15.00 $225,000

Total Cost $30.00 $450,000

1. Suppose that if the company purchases the thermostats from the outside supplier that the freed-up production capacity could be used to launch a new product with estimated net of $65,000. Should the offer be accepted? Why?

Hint We are only concerned with per unit cost and we only care about relevant costs