The Velasquez Company, a maker of a variety of metal and plastic products, is in the midst of a business downturn and is saddled with many idle facilities. The National Hospital Supply Company has approached Velasquez to produce 300,000 nonslide serving trays. National will pay \($1.30\) each.

Velasquez predicts that its variable costs will be \($1.40\) each. However, its fixed costs, which had been averaging \($1\) per unit on a variety of other products, will now be spread over twice as much volume. The president commented,

“Sure, we'll lose \($0.10\) each on the variable costs, but we’ll gain \($0.50\) per unit by spreading our fixed costs. Therefore, we should take the offer, because it represents an advantage of \($0.40\) per unit.”

Do you agree with the president? Why? Suppose the regular business had a current volume of 300,000 units, sales of \($600,000,\) variable costs of \($420,000,\) and fixed costs of \($300,000.\)