Question 2 Kirin Limited produces and sells wheelie bins to local authorities and recycling companies. The company has capacity to produce 40,000 units but annual production and demand is currently limited by the market to 25,000 wheelie bins per year. The total costs of producing 25,000 wheelie bins are as follows: Direct materials Direct labour Variable overhead Fixed overhead Total cost of 25,000 wheelie bins £ 280,000 56,000 39,000 220,000 595,000 The selling price of each wheelie bin is £25. Required An order is received from Matt Waste Disposal for 5,000 wheelie bins at a price of £22 each. Explain, with reasons, whether Kirin Limited should accept this order or not. Explain what possible adverse consequences there would be in accepting this new order.

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