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 $$6\mathrm{.}00$ $$90,000$

Direct Labor $$8\mathrm{.}00$ $$120,000$

Variable Overhead $$1\mathrm{.}00$ $$15,000$

Fixed Overhead $$15\mathrm{.}00$ $$225,000$

Total Cost $$30\mathrm{.}00$ $$450,000$

Required:

$1.$ Assuming the company has no alternative uses for its production capacity now being used to

produce thermostats, should the outside suppliers offer be accepted? Why?

$2.$ 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