PQ ltd manufactures toasters. it is investigating whether or not to accept a one year contract to make a new model toaster for sale through supermarkets. if the contract is accepted a new machines costing TZS 7,000,000 would have to be bought at the start of the contract. The contract uses skilled labor which cannot be increased above that currently available. PQ will receive a fixed price of TZS 45,000 per toaster for all the toasters it can produce under this contract in a year. The following estimates have been made:

materials TZS 30,000 per toaster

labor TZS 6,000 per hour

cost of capital 15%

the factory manager knows from experience of similar machines that there will be a learning effect for labor. He estimates that the learning rate will be 90%. He also estimates that the first 500 toasters will take 800hours to produce and that the fixed amount of labor available will enable 4,000 toasters to be produced in the first year. Fixed overheads of TZS 25,000,000 will be payable for each year.

REQUIRED:Advice the factory manage whether the contract should be accepted or not ( show calculations)