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

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?