Dauphin Ltd has provided you with the following information for the single product it produces:

				Per Unit
Direct materials				$12.00
Direct labour				$8.00
Variable overhead				$6.00
Variable selling expenses				$5.00
Fixed overhead				$3.00

The fixed overhead of $3.00 per unit is based on expected production of 20,000 units. If more than 20,000 units were produced, Dauphin would incur an additional $100,000 of fixed overhead costs. Dauphins fixed selling and administrative expenses total $40,000, regardless of the number of units sold. Dauphins income tax rate is 40%.

Required:

1. Frederico Ltd is willing to supply this product to Dauphin at a cost of $28.00. Annual sales of dauphin are expected to be 18,000 units. Should Dauphin purchase the product from Fredrico Ltd? Explain fully.

2. What are some qualitative factors that management needs to consider when deciding to accept or reject Fredericos offer to supply the product?