Gyro Gear loose presently manufacturers a switch that is currently used in the production of planes.

The unit costs to make this switch are:

Direct materials $2.50

Direct Labor 3.00

Variable manufacturing overhead 0.50

Fixed manufacturing overhead 4.25

Variable selling and administration costs 1.50

Fixed selling and administration costs 2.00

$13.75

The $13.75 unit cost is based on 8,000 switches produced each year that sell for $15.00 each.

Fixed costs are allocated based on the basis of direct labor hours and are not avoidable.

A special mould will have to be purchased for this specific order at a cost of 12,000

Gearlose is capable of producing 12,000 switches per year.

An outside supplier has approached Gyro Gearlose to purchase 2,000 switches at a price of $12.00 each and this order will not affect regular sales.

Required:

ALL CALCULATIONS MUST BE SHOWN

1. Should the company accept the outside suppliers offer?

2. Give two qualitative factors would influence your decision.