Smooth Write Ball Pens Company produces and sells a variety of ball pens. For the past few months, the product has been facing low demand, as a result of which the company is saddled with idle capacities. Fortis Healthcare, which runs more than 100 polyclinics and diagnostic centers, has approached Smooth Write Ball Pens Company to produce and supply 300,000 ball pens with its name engraved on it. Fortis will pay $3.00 for each pen. 

Smooth Write predicts that its variable costs will be $3.20 each. Its fixed costs, which had been averaging at $2.00 per unit on a variety of other products, will now be spread over twice as much volume. Justifying the acceptance of the offer, the CEO of the company has issued a statement saying that “Though the company will lose $.20 each on the variable cost, it will gain $1.00 per unit by spreading its fixed costs. Therefore, acceptance of this offer will lead to a gain of $.80 per unit.”

Suppose the regular business of the company had a current volume of 300,000 units, sales of $1,200,000, variable costs of $960,000, and fixed costs of $600,000. Do you agree with the CEO? Why?