Beta Bhd manufactures two models of a pocket calculator. The Basic model sells for RM5.50, has a direct material cost of RM1.25 and requires 0.25 hours of labor time to produce. The other model, Special, sells for RM7.50, has a direct material cost of RM1.63 and takes 0.375 hours to produce.

Labor, which is paid at the rate of RM6.00 per hour, is currently very scarce, while demand for the companys calculators is in high demand. The company is currently producing 8,000 of the Basic model and 4,000 of the Special model per month, while fixed costs are RM24,000 per month.

An overseas customer has offered the company a contract, worth RM35,000, for a number of calculators made to its requirements. The estimating department has ascertained the following facts in respect of the work:

• The labor time for the contract would be 1,200 hours.
• The material cost would be RM9,000 plus the cost of a particular component not normally used in the companys models
• These components could be purchased from a supplier for RM2,500 or alternatively, they could be made internally for a material cost of RM1,000 and an additional labor time of 150 hours.

Required

Advise the management as to the action they should take with regards to sales contract from the overseas customer. (20 marks)