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Prepare an incremental analysis for the Klean Fiber.
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 as an undergarment for sports activities. Operating at capacity, the company can produce 1,040,200 undergarments of Y-Go a year. The per unit and the total costs for an individual garment when the company operates at full capacity are as follows.Per Undergarment Total Direct materials $2.09 $2,174,018 Direct labor 0.57 592,914 Variable manufacturing overhead 1.03 1,071,406 Fixed manufacturing overhead 1.42 1,477,084 Variable selling expenses 0.33 343,266 Totals $5.44 $5,658,688
The U.S. Army has approached Klean Fiber and expressed an interest in purchasing 251,000 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 $0.98 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.
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Explanation / Answer
Solution:
Prepare a Incremental Analysis:
Incremental Anaysis
Net Profit Caluculation Based on the Basic Cost + Additional 0.98 IS Added to the Base Value
= 5.44 + 0.95 = 6.42 Per Selling Unit Cost
Multiply the Total No.of Units 10,40,200
We can find the Total Sales = 10,40,200 * 6.42
= 10,40,200 * 6.42 = 66,78,084
Finally Profit Caluculate Easly to find
Profit = 10,19,396
Particulars Amount Sales (10,40,200 * 6.42) 66,78,084 Less: Expencess Direct materials 21,74,018 Direct labor 5,92,914 Variable manufacturing overhead 10,71,406 Fixed manufacturing overhead 14,77,084 Variable selling expenses 3,43,266 Total All Expencess 56,58,688 Net Operating Income = 10,19,396Related Questions
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