Question

Exercise 20-4 Klean Fiber Company is the creator of Y-Go, a technology that weaves silver into its fabrics to kill bacteria and odor on clothing while managing heat. Y-Go has become very popular in undergarments for sports activities. Operating at capacity, the company can produce 1,000,000 Y-Go undergarments a year. The per unit and the total costs for an individual garment when the company operates at full capacity are as follows. Total Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead Variable selling expenses Totals Per Undergarment $2.00 0.75 1.00 1.50 0.25 $5.50 $2,000,000 750,000 1,000,000 1,500,000 250,000 $5,500,000 The U.S. Army has approached Klean Fiber and expressed an interest in purchasing 250,000 Y-Go undergarments for soldiers in extremely warm climates. The Army would pay the unit cost for direct materials, direct labor, and variable manufacturing overhead costs. In addition, the Army has agreed to pay an additional $1 per undergarment to cover all other costs and provide a profit. Presently, Klean Fiber is operating at 70% capacity and does not have any other potential buyers for Y-Go. If Klean Fiber accepts the Army's offer, it will not incur any variable selling expenses related to this order.

Answer 1

1) Incremental analysis

Incremental revenue (250000*4.75)	1187500
Incremental cost
Direct material	500000
Direct labor	187500
Variable overhead	250000
Total	937500
Incremental profit (loss)	250000

Yes, Special order should be accepted

Note : Please post each question individually as HOMEWORKLIB guidelines