Mathews pic anticipates that it will produce 5,000 units per annum at a selling price of £6.00 each. At that level of production , the costs will be:

(a) A customer has placed a special order and has requested a discount price of £5.00 per unit . Should this order be accepted?

(b) By reducing the selling price to £5.50 per unit, sales could be increased to 7,000 units without incurring additional fixed costs . Is this price reduction advisable?

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Direct materials 1.60 Direct labour 2.00 Factory overheads: variable fixed 0.80 0.30 Fixed administration and selling overheads 0.50 Total cost 5.20