The Consumer Products division of eli house of aplliences has been struggling lately. Management has noticed a steady level of losses being reported and is concerned about how to turn the division around. The division manager reports that the production of toasters is causing the issue. She has prepared the following summary of monthly costs and operations.

Costs for finished toasters
Direct materials	$ 35/unit
Direct labor	$ 45/unit
Variable overhead	$ 25/unit
Fixed overhead	$ 13/unit
Variable selling and administrative expenses	$ 2/unit
Fixed selling and administrative expenses	$ 3/unit
Selling price	$ 125/unit

Maximum production capacity	20,000 units/month
Current production / Sales levels	15,000 units/month

The sales department has received an offer for a new monthly contract for 3,000 finished toasters for $ 110 each from a vendor in south America. The vendor will use an inferior heating element (direct material) reducing the material cost by $ 2 per toaster. Variable overhead will increase by ten percent to accommodate the inferior element. The variable selling and administrative expenses will not occur because the contract was not bought in by the sales staff. However, the monthly shipping charge will be $ 7,500. The vendor is requiring the toasters to be marked with the companys logo to ensure marketability.

Required: Please advise management. Be sure to demonstrate capacity issues, profitability issues, and other issues.