Question 7 Not yet Philco Fire Alarms has a factory in Ft. Saskatchewan with a maximum capacity of 9,000 MH's per month. Philco currently has a monthly budget of 8,500 MH's. Per unit cost data for their light industrial fire alarms is as follows: Direct Materials per unit $22.00 Marked out of 4.00 Flag question Direct Labour 18.00 Variable Selling and Administration 7.00 20.00 Total Manufacturing Overhead Total Costs per unit $67.00 It requires 6 minutes of machine time (.1 MH) to produce one alarm Fixed overhead is allocated at $80 per MH. The normal selling price for an alarm is $75 K-Co Construction has offered to buy 25,000 alarms at an offer price of $62.00 per unit. There would be no vanable selling and administration costs if the order was accepted. Question #7-Several days later K-Co calls Philco with a reduced order for 20,000 units. The product is the same as above except that K-Co also wants to add a carbon monoxide (CO) component that would cost Philco $8 per unit plus a machine rental of $25,000 to produce. They have increased their offer price to $70.00 per unit. Should Philco accept K-Co's new offer? If Philco were to accept what would be the effect on operating income? (4 marks) A- B I