Question

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 1,087,000 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.

Direct materials$1.96$2,130,520Direct labor0.41445,670Variable manufacturing overhead0.991,076,130Fixed manufacturing overhead1.581,717,460Variable selling expenses0.30326,100   Totals$5.24$5,695,880

The U.S. Army has approached Klean Fiber and expressed an interest in purchasing 249,700 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 $1.09 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.

Prepare an incremental analysis for the Klean Fiber. (Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).)

		enter revenues in dollars		enter revenues in dollars		enter revenues in dollars
		enter direct materials in dollars		enter direct materials in dollars		enter direct materials in dollars
		enter direct labor in dollars		enter direct labor in dollars		enter direct labor in dollars
		enter variable overhead in dollars		enter variable overhead in dollars		enter variable overhead in dollars
		enter a subtotal of the three previous amounts		enter a subtotal of the three previous amounts		enter a subtotal of the three previous amounts
		enter net income in dollars		enter net income in dollars		enter net income in dollars

Should Klean Fiber accept the Army's offer?

select between accept and reject                                                          rejectaccept

Answer 1

Prepare an incremental analysis for the Klean Fiber. (Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).)

		Reject order		Accept order		Net income increase (decrease)
Revenue		0		1111165		1111165
Less: Cost
Direct material		0		-489412		-489412
Direct labor		0		-102377		-102377
Variable overhead		0		-247203		-247203
Total Cost		0		-838992		-838992
Net income (loss)		0		272173		272173

Accept