The Dover Rubber Company produces tires in their Oshawa, Ontario plant. They have a plant capacity of 4,000,000 tires per year and are currently running at 90% capacity. Canadian Motors, a major car manufacturer, has proposed that Dover supply 500,000 tires as parts for their new line of cars. The tires for Canadian Motors will require the same amount of variable inputs (including time) on a per unit basis as current production. Total fixed costs will not be affected by the order. This is an all or nothing offer. Dover cannot supply only part of the order.

Regular price of tire$ 63.50

Canadian Motor's offered price$ 41.65

Dover's full cost per unit (assuming 90% capacity production):

Variable cost of production$ 34.30

Fixed production costs17.50

Total cost per unit$ 51.80

Required:

Should Dover accept the offer? Why or why not? Show calculations.