Parker Ltd produce quality pens and pencils and it has been producing and selling 10,000 sets

per month . It provides the following information because it has been facing increasing competition

both in the local market and from imported products:

Manufacturing costs

Direct material $1.00 per unit

Direct labour 1.20 per unit

Variable overhead 0.80 per unit

Fixed overhead $10,000

Marketing costs

Variable $1.50 per unit

Fixed $15,000

Parker has been selling these pen and pencil sets for $7.50 each and has asked you to provide answers to the following.Each part is to be considered independently of the others.

Required :

(a) Assuming that all 10,000 pen and pencil sets produced in a month are sold calculate the monthly profit .

(b) A request has come from an educational institution for Parker to supply an extra 2,000 pens per month at a price of $5.50 per set.The educational institution want their logo inscribed on the pen and pencil set.This would cost an extra $0.60 per set.Should this one offrequest be accepted based

on profit alone? Should any other factors be considered before accepting the order? What other factors should be considered ?

(c) Another request has come in the form of a long term government contract which wants you to supply 5,000 pen and pencil sets per month on an ongoing basis for $4 per set and a one off payment of $4,000.Should this offer be accepted?Provide reasons for your decision.