A company BB Ltd makes a product, selling for 20pence

Question

A company BB Ltd makes a product, selling for 20pence - a can of baked beans. A major supermarket who currently buys their baked beans from a rival baked bean company asks BB Ltd if they will provide them with ‘Own Label' baked beans for 16 pence a can, the costs of manufacture are as follows: 
BB Baked Beans: Costs per can
Direct Materials 4
Direct Labour 4
Variable Overheads 3
FO 4
Manufacturing Absorption Cost 15
Advertising 1
Transport costs (variable) 1
Total Cost 17p
Should they supply the Supermarket at this price (16p)?
What reservations would you have?

Quizplus · Accepted Answer

The Answer of A company BB Ltd makes a product, selling for 20pence - a can of baked beans. A major supermarket who currently buys their baked beans from a rival baked bean company asks BB Ltd if they will provide them with ‘Own Label' baked beans for 16 pence a can, the costs of manufacture are as follows: 
BB Baked Beans: Costs per can
Direct Materials 4
Direct Labour 4
Variable Overheads 3
FO 4
Manufacturing Absorption Cost 15
Advertising 1
Transport costs (variable) 1
Total Cost 17p
Should they supply the Supermarket at this price (16p)?
What reservations would you have?