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Msata Electronics Ltd makes a hand$-$held calculator for business applications. Budgeted financial data for this protuct line for the coming year are shown below:

Sales $(5,000$ units is $3\mathrm{.}500$

$17,500,000=$

Cost of goods manufactured and sold:

Direct materials ait $\frac{400}{?}-$

Direct labour & $800K=$

Fixed factory overhead ai $300=,1\mathrm{.}500,000={?}_{,}\frac{8,000,000}{9,500,000}==$

Ciross margin

Operating expenses:

Operating income

Fach calculator takes an electronic component which the company estimates accounts fort $\frac{100}{?}=$ of direct materials costs, $\frac{355}{?}$ of direct labour and $\frac{35}{?}=$ of variable overhead cost per completed calculator.

Lugobar Electronies has approached Msala Lid with an offer to make the electruaic component for $500=$ each. If Msata Lid accepts Lugoba's offer, their estimate they could cut their fixed manufacturing overhead by the following amounts:

i$)$ Supervisory salaries and fringe benefits $45,\frac{000}{?}=$

ii$)$ Heating and lighting costs $18,000=($as they would no longer use the section of the building in which the component is now being manufacturod$)-$

iii$)$ Depreciation $12,\frac{000}{?}($as they would stop using certain equipment, since there is no ready markel for it because of its age$).$

Note: the fixed factory overhead above is based on a volume of $5\mathrm{.}000$ units at $300N=$ each.

Required:

$($a$)$ Should the offer from Lugola be accepted? Give clear reasons for your answer. showing all necessary calculations.

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