Klean Fiber Company is the creator of Y-Go, a technology that weaves silver into
ID: 2454293 • Letter: K
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 1,044,900 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.
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 1,044,900 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 $1.95 0.40 1.03 1.45 0.35 $5.18 Tota Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead Variable selling expenses $2,037,555 417,960 1,076,247 1,515,105 365,715 $5,412,582 Totals The U.S. Army has approached Klean Fiber and expressed an interest in purchasing 249,600 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.Explanation / Answer
Reject order Accept order Net income Increase/(decrease) Revenue 0 1088256 [(.98+1.95+.4+1.03]*249600 1088256 less:Variable cost Direct material 0 486720 [249600*1.95] (486720) Labor 0 99840 [249600*.4] (99840) Variable overhead 0 257088 [249600*1.03] (257088] Total variable cost 0 843648 (843648) net income 0 244608 244608
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