Solera Company manufactures a standard product SV1 which is a smart vacuum cleaner. SV1 currently fully utilises the available production capacity of 6,000 machine hours per period. Solera Company has been approached by a potential customer with a view to the placement of an order for 3,000 units of the product at a price of $30 per unit. The product would need to be modified to the customer's own specification. Modifications will include changes in power voltage, packaging and design which will result in additional operating costs being incurred. Details of operating costs, both for the standard product and for the modified version, are as follows: (see the picture)

Other information: (1) Fixed production overheads are currently $67,500 per period (2) The selling price of the standard product is $23 per unit (3) Further to the costs set out above, investment of $4,500 would be required in specialised equipment in order to be able to manufacture the modified product

REQUIRED a) Advise the Solera Company whether accepting the new order would be worthwhile. Support your advice with appropriate calculations and explanations based on the above figures. b) State three other factors that may influence the decision.

Standard product Modified product $/unit $/unit Direct materials 7.40 9.00 Direct labour 7.50 7.95 Production overheads 6.00 (0.4 machine hrs) 9.00 (0.6 machine hrs)