Gyro Gearloose 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 is 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 provide the 2,000 switches at a cost 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. Would it be different if Gyro Gearlose could make plasma displays in the space now occupied by the switch and make a profit of $3,000?
3. Give two qualitative factors would influence your decision.