A business manufactures a single product with a selling price of £21 and variable unit costs of £7. Period fixed overheads are £4,942 per month. Current production levels are 700 units per month (at 80% capacity). A customer has offered to buy up all of the business spare capacity for £3,220.

 Required: Evaluate the customer’s offer from financial viewpoint and discuss whether they should accept or reject the special offer. Note: show all workings.

Answer rating: 100% (QA)

To evaluate the customers offer we need to calculate the contribution margin and compare it to the f... View the full answer