A company produces a single product and has budgeted for the production of 100 000 units during the next quarter. The cost estimates for the quarter are as follows:

The company has received orders for 80 000 units during the coming period at the generally accepted market price of £18 per unit. It appears unlikely that orders will be received for the remaining 20000 units at a selling price of £18 per unit, but a customer is prepared to purchase them at a selling price of £12 per unit. Should the company accept the offer?

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Direct labour Direct materials () 600 000 200 000 Variable overheads 200000 Fixed overheads 400 000 1.400.000