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A manufacturer produces a car component. The cost sheet of the component is as follows: Direct Material 4.00 Direct Labour 2.00 Variable Overheads 1.50 Fixed

A manufacturer produces a car component. The cost sheet of the component is as follows:

Direct Material 4.00

Direct Labour 2.00

Variable Overheads 1.50

Fixed Overheads 2.50

A foreign manufacturer who uses this car component offers to purchase 20,000 units at Rs. 13 per component against the usual price of Rs. 15 per unit. If this offer is accepted the fixed expenses will go up by Rs. 40,000 annually.

Would you accept this offer? Are there any other considerations, which may affect your decision?

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