Micro Limited has some spare capacity. It is now considering whether it should accept a special contract to use some of the spare capacity. However, this contract will use some specialist direct labour that is in short supply. The following details relate to the proposed contract:

In order to complete the contract, 4000 direct labour hours would be required. The company’s budget for the year during which the contract would be undertaken is as follows:

There would be 50,000 direct labour hours available during the year.

Required:
Determine whether the special contract should be accepted.

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Contract price Variable costs: Direct materials Direct labour £000 50 10 30