Micro Limited has some spare capacity. It is now considering whether it should accept a special contract to use some of the spare capacity. However, this contract will use some specialist direct labour that is in short supply. The following details relate to the proposed contract:

£000 Contract price 50

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Variable costs:

Direct materials 10 Direct labour 30 In order to complete the contract, 4000 direct labour hours would be required. The company’s budget for the year during which the contract would be undertaken is as follows:

£000 Sales 750 Variable costs (500)

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Contribution 250 Fixed costs (230)

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Profit 20

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There would be 50 000 direct labour hours available during the year.

Required:

Determine whether the special contract should be accepted.