Klean Fiber Company is the creator of Y-Go, a technology that weaves silver into

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 1,000,000 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.

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.

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).)

Per Undergarment Total Direct materials $2.00 $2,000,000 Direct labor 0.75 750,000 Variable manufacturing overhead 1.00 1,000,000 Fixed manufacturing overhead 1.50 1,500,000 Variable selling expenses 0.25 250,000    Totals $5.50 $5,500,000

Explanation / Answer

let sale price of klean fiber for customer is 4..00 ie 2+0.75+1+0.25

SALE PRICE IF ORDER ASSCEPTED, AS ARMY AGREED TO PAY ALL COST + $1 , AND SELLING EXPENSES WILL NOT BE INCURRING IN THIS CASE SO => 2 +0.75 + 1 +1 => 4.75

NOTE; AS NO POTENTIAL BUYERS TO PURCHASE SO WILL NOT CONSIDER FIXED COST.

ITS BETTER TO ACCEPT ORDER AS COMPANY IS HAVING CAPACITY TOPRODUCE AND ARMY IS ALSO PROVIDING XTRA $ 1 AND NO SEELING EXPENSES INCURRING IN THIS CASE, SO IT IS A VERY FRUITFULL OFFER FOR FIBER CO.

REJECT ORDER ACCEPT ORDER NET INCOME INCREASE (DECREASE) REVENUE 4.00 4.75 0.25 VARIABLE COST MATERIAL 2 2 DIRECT LABOUR 0.75 0.75 VARIABLE OVERHEAD 1.25 1 NET INCOME $0 $2.5 $2.5 INCREASE

Related Questions

Navigate

• Browse (All)
• Browse K
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.