Rianne Company produces a light fixture with the following unit cost:

Direct material: $2

Direct labour: 1

Manufacturing overhead*: 5

Unit cost: $8

*40% of manufacturing overhead costs are fixed overheads.

The production capacity is 300 000 units per year. Because of a depressed housing market, the company expects to produce only 180 000 fixtures for the coming year. The company also has fixed selling costs totaling $500 000 per year and variable selling costs of $1 per unit sold. The fixtures normally sell for $12 each.

At the beginning of the year, a customer from a geographic region outside the area normally served by the company offered to buy 100 000 fixtures for $7 each. The customer also offered to pay all transportation costs. Since there would be no sales commissions involved, this order would not have any variable selling costs.

Required:

(a) Based on a quantitative analysis, should the company accept the order? Show calculations to support your answer. (3 marks)

(b) If the customer offered to buy 200 000 fixtures instead, should the company accept the order? (3 marks)