Exercise 12-3 Make or Buy A Component Given: 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 theromostat to Climate-Control for $20 per unit. To evaluate this offer, Climate-Control, Inc., has gathered the following information relating to its own cost of producing the thermostat internally: 15,000 Per Units Per Unit Year Direct materials $90,000 Direct labor 120,000 Variable manufacturing overhead 15,000 Fixed manufacturing overhead, traceable *** 75,000 Fixed mfg. overhead, common, and allocated 10 150,000 Total cost $30 $450,000 * * * 40% supervisory salaries; 60% depreciation of special equipment (no resale value). Required: 1. Assuming that the company has no alternative use for the facilities now being used to produce the thermostat, should the outside supplier's offer be accepted? Per Unit Differential Costs 15,000 units Make Buy Make Buy Cost of purchasing $ 20 $ 300,000 Direct materials 90000 Direct labor 20,000 Variable manufacturing overhead 1 15,000 Fixed manufacturing overhead, traceable 2 30,000 Fixed manufacturing overhead, common Total costs $ 17 $ 20 $ 255,000 $ 300,000 Difference in favor of Make = 45,000 Decision: Based on these data, the company shouldd reject the offer and should continue to produce the parts internally would be $65,000 per year. Should Climate-Control, Inc., accept the offer to buy the