Exercise 20-4 Klean Fiber Company is the creator of Y-Go, a technology that weav
ID: 2465845 • Letter: E
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 as an undergarment for sports activities. Operating at capacity, the company can produce 1,054,600 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 Direct labor Variable manufacturing overhead Fixed manufacturing overhead Variable selling expenses $1.96 0.56 1.10 1.46 0.37 $5.45 $2,067,016 590,576 1,160,060 1,539,716 390,202 $5,747,570 Totals The U.S. Army has approached Klean Fiber and expressed an interest in purchasing 249,300 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 $1.02 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.Explanation / Answer
1. Total of Direct Material, Direct Labour and Varaible Overheads per unit = (1.96+0.56+1.1) = $ 3.62
2. Fixed Manufacturing Overheads NOT incurred because of suplus capacity. (presently 70% capacity used)
3. Varaible Selling expesnes NOT incurred for special order.
The US Army, pay all varaiable expenses ( $ 3.62 per unit) and paid $ 1.02 per unit towards Profit.
The number of units = 249,300
Therefore, Total Profit increases by 249,300 * $ 1.02 = $ 254,286
Therefore, Accept the order from US Army.
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