Burton Brothers manufactures machine tools for metal-based industries. One of its customers, Wey Ltd, has placed a £590,000 order for a machine, including £10,000 for delivery and installation. Wey paid a deposit of £180,000 and has since paid instalments totalling £150,000. Unfortunately, Burton Brothers has received a letter from a solicitor informing it that Wey Ltd has gone into liquidation and is unlikely to be able to pay any of its debts. This project has incurred the following costs to date:
................................................................................................ £
Engineering design...................................................... 70,000
Materials..................................................................... 129,000
Direct labour (760 hours @ £10/h)............................... 7,600
Production overheads (760 hours @ £88/dlh).......... 66,880
...................................................................................... 273,480
The production overheads are all fixed costs and it is company policy to absorb them on the basis of direct labour hours (dlh). Another customer, Bridge & Co., has expressed an interest in the machine, provided some additions are made to the specification, and is willing to pay a price of £400,000. To complete the machine to the original specification, it is estimated that a further 2,000 direct labour hours (at £10/hour) and a further £204,000 of materials will be needed. Contracts for £24,000 of these materials have already been signed but no money has yet been paid. The contract provides for a cancellation fee of £6,000 provided cancellation is confirmed in the next 11 days. These materials are components made especially to order for this machine and have no other use or value. The rest of the materials are in regular use by Burton Brothers. Twenty-five per cent of the £204,000 of materials are currently in the stores. The additions requested by Bridge & Co. will need a further £45,000 of materials and 400 hours of direct labour. Some of these additional materials, which have an estimated purchase price of £13,500, could be replaced by similar material currently in the stores. This was left over from a previous contract and has no other use. It originally cost £9,500, which is its current stock valuation, but if it were to be sold on the open market it would fetch £12,000.
Burton Brothers is itself in a precarious position as it has no new orders on its books. If this job is abandoned, its direct workforce will be put on standby, which means they will be sent home and paid a rate of £4 an hour to retain their services. However, if this were to happen, the directors believe that some of these skilled workers would fi nd permanent work elsewhere and would leave the company. If no customer is found for the machine, it will be sent for scrap; this is expected to produce £6,000 income.

Task:
Burton Brothers is unsure whether or not to accept the offer from Bridge & Co. Consider each of the above items and advise the company accordingly.