12 (SPECIAL ORDER) The ABC Company is currently operating at its full capacity of 2,00,000 units annually. Costs are as follows: Rs. Direct Materials 6,00,000 Direct Labour 3,00,000 Variable Overhead 2,00,000 Variable Selling and Administrative Expenses 1,00,000 Fixed Overhead 1,00,000 Fixed Selling and Administrative Expenses 50,000 The product is sold under ABC Company brand for Rs. 10. Hari distributors offer to purchase 80,000 units annually for the next five years at Rs. 7.00 a unit. This offer, if accepted, will not affect the current selling price because Hari distributors will sell under its own brand name. Acceptance of the offer will have the following results. (a) Labour costs on the additional 80,000 units will be 1.5 times the regular rate. (b) Variable selling & administrative expenses will increase by Rs. 0.10 a unit on additional unit only. (c) The required additional materials can be purchased at a 5% volume discount. (d) All other cost factors will remain the same. Required: Should ABC Company accept the offer? [Ans: Accept special offer, profit increased by Rs. 24,000]