Exercise 21-4 Your answer is partially correct. Try again Klean Fiber Company is

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Exercise 21-4 Your answer is partially correct. Try again 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 1,088,000 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. Per Undergarment Total Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead Variable selling expenses $1.96 0.52 1.07 1.47 0.30 $5.32 $2,132,480 565,760 1,164,160 1,599,360 326,400 $5,788,160 Totals The U.S. Army has approached Klean Fiber and expressed an interest in purchasing 249,400 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 $0.96 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).) Reject Order Accept Order Net Income Increase (Decrease) Revenues 5.32 249,400 1,326,808 Variable costs: Direct materials 1.96 249,400 488,824 Direct labor 0.52 249,400 Variable overhead Total variable costs

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Since company is operating at 70% capacity and do not have any other buyer, rejection of the same will make sale over and above 70% zero. per unit*249400 Reject Order Accept Order Net Income Increase Revenue 0 1124794 1124794 Variable Cost: Direct Material 0 488824 488824 Direct Labor 0 129688 129688 Variable Overhead 0 266858 266858 Total Variable Cost 0 885370 885370 Net Income 0 239424 239424 Working: Direct Material 1.96 Direct Labor 0.52 Variable Ovh 1.07 Additional 0.96 Selling Price 4.51 Should accept the offer as Net income is increased by 239424

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