Harcourt Manufacturing (HM) has the capacity to produce 12,000 fax machines per year. HM currently produces and sells 8,000 units per year. HM currently leases its excess capacity for a rental fee of $46,000. The fax machines normally sell for $200 each. Modem Products has offered to buy 3,000 fax machines from HM for $110 each. Unit-level costs associated with manufacturing the fax machines are $35 each for direct labor and $60 each for direct materials. Product-level and facility-level costs are $60,000 and $75,000, respectively.

Based on this information (ignore qualitative characteristics) :

HM should reject the offer because accepting it will reduce profitability by $1,000.

HM should accept the offer because accepting it will contribute $12,000 to profit.

HM should reject the offer because accepting it will reduce profitability by $12,000.

HM should accept the offer because accepting it will contribute $46,000 to profit.