Kofi Abebrese runs a small industrial company that specialize in the production of high standard windows for housing estates. A worker is paid GH0.9 per hour and can produce two window with an hour. Each window uses a frame costing GH1 and incur a variable overheads of GH0.7. Each window sells for GH3. Currently, due to the economic condition, work is rather slack and three employees are occupied in carrying out extensive repairs to Kofi Abebrese's own house. Kofi owns a warehouse next to the factory, which had been used as a factory store, in the past. It is now let out on a renewable annual lease of GH600. A new building company, Allied Consult, which specializes in the production of prefabricated houses has asked Kofi if he would be interested in accepting a contract for GH30,000 which will be for a year initially, to produced molded internal building sections. Kofi estimates that, the contract will take 13,200 hours of works, or the work of five men for a year, and that variable overheads would be GH10,000. The work would have to replace 9,600 hours of existing work. He estimates that the material required for the contract would cost GH6,000. Alternatively, the work could be carried out in the warehouse; the lease is due to be renewed next month. Kofi thinks this would involve the company in an extra cost of GH300 for heating and the cost of power would increase by GH500. He would hire two new workers and pay them GH2,200 each per annum. If the contract was carried out in the warehouse, the other three workers would be those at present repairing Kofi's house. The three workers are paid GH7,700 per annum in total and it would cost GH2,500 to get an outside contractor to finish the house repairs.

Required

a. Advise Kofi on what to do. (20 marks)

b. Consider the long term implications this decision might have on Kofi's business. (10 marks)