GreenLeaf Furniture Ltd., a small but rapidly growing manufacturer of bespoke wooden furniture, has prepared its operating budget for the…

GreenLeaf Furniture Ltd., a small but rapidly growing manufacturer of bespoke wooden furniture, has prepared its operating budget for the forthcoming year (figures in 000s). The company supplies premium handcrafted items to interior designers, boutique resorts, and high-end retail outlets. Due to rising demand for sustainable and custom-made furniture, GreenLeaf has recently expanded its workshop capacity, although it still operates close to full utilisation during peak months. The annual budget reflects management's efforts to control costs while maintaining craftsmanship standards, and it serves as the basis for setting selling prices, estimating profitability, and negotiating large contracts for the year. Particulars Amount (000) Budgeted Sales revenue 2,000 Direct materials 360 Direct labour 640 Factory overheads - Variable 220 Factory overheads — Fixed 260 Administration overheads - Fixed 180 Sales commission (variable) 100 Fixed selling overheads 40 Budgeted Profit 200 Company pricing policy: all production and selling overheads other than prime costs (i.e., everything except direct materials and direct labour) are recovered as a percentage of direct wages. After total cost is computed, the company adds a markup equal to one-ninth (1/9) of total cost to arrive at the selling price (this markup is intended to give the budgeted profit). Situation: A boutique lakeside hotel approaches GreenLeaf directly to place a one-off order for a set of custom dining tables. Because the client is buying directly (no dealer commission) and the order will be produced in addition to the budgeted output, GreenLeaf estimates the extra prime costs for the special order as follows: Direct materials:45,000Direct labour:75,000 Using its standard pricing policy, GreenLeaf prepared a quotation of 2,37,500 for the special order. The hotel, however, says it can only pay - 1,80,000 and asks whether GreenLeaf will accept that price. Management is reluctant to accept any order below the company's calculated total cost because they believe this will cause a loss. Required: STATE and EXPLAIN the arguments for and against accepting the hotel's offer of 180,000 for the special order. Consider:Provide a clear RECOMMENDATION to the management (accept / reject / accept with conditions).