Lotus Ltd manufactures mobile telephones.The current operating level is 400,000 phones but full capacity is 550,000.The phones normally sell for Sh 1,500 per phone.Manufacturing cost data of 400,000 phones is as shown below:

Manufacturing costs

Sh'000'

Sh'000'

Variable costs

300,000

Fixed costs

187,500

487,500

Selling and administration costs

Variable (freight and commissions) costs

30,000

Fixed costs

60,000

90,000

577,500

A vendor offers to buy 100,000 phones for export at Sh 1,125 per phone.The buyer will pay for freight and no commissions will be paid.The acceptance of this offer will not affect the present sales.The managing director is reluctant to accept that offer because he believes that the offer price of Sh 1,125 is well below the manufacturing cost per unit.

Required:

(c)Should the offer be accepted?