The Companys projected volume of production is 3,000 units of the product ABC per month. Standard selling price of product ABC per unit amounts to EUR 4,350. The monthly costs of manufacturing and marketing the product ABC are shown in Table 1.

Table 1. Product ABC, costs per unit.

Unit manufacturing costs:

Variable materials EUR 550

Variable labor EUR 825

Variable overhead EUR 420

Fixed overhead EUR 660

Total unit manufacturing costs EUR 2,455

Unit marketing costs:

Variable EUR 275

Fixed EUR 770

Total unit marketing costs EUR 1,045

Total unit costs EUR 3,500

Ignoring the effect of income taxes, please address the following question.

1. A local municipality has made a contract offer to supply 500 units due within the 30 days. Assume that the Company is using all available capacity and is producing 4,000 units per month. In case the municipality order is accepted, 500 units of regular sales would be lost to competing firms. The municipality would cover the orders share of monthly production costs as well as a fixed fee of EUR 275,000 would be paid. The Company estimates that no variable marketing costs would be incurred on the municipal order. Please provide your recommendation to accept / reject the order.