Cottage Industries Ltd (see Example 7.1)  has spare capacity as its basket makers have some spare time. An overseas retail chain has offered the business an order for 300 baskets at a price of £13 each.

Without considering any wider issues, should the business accept the order? (Assume that the business does not rent the machine.)

Data from Example 7.1

Cottage Industries Ltd makes baskets. The fixed cost of operating the workshop for a month totals £500. Each basket requires materials that cost £2. The business pays the basket makers £10 for each basket completed. The basket makers are all on contracts that stipulate if they do not work for any reason, they are not paid. The baskets are sold to a wholesaler for £14 each.

What is the BEP for basket making for the business?