E7.19 (LO 2) Hardy Fibre is the creator of Y-Go, a technology that weaves silver into fabrics to kill bacteria and odour on clothing while managing heat. Y-Go has become very popular in undergarments for sports activities. Operating at capacity, the company can produce one million Y-Go undergarments each year. The per-unit and total costs for the undergarment are as follows: Prepare incremental analysis for a special-order decision. Per Undergarment Total Direct materials $2.00 $2,000,000 Direct labour 0.50 500,000 Variable manufacturing overhead 1.00 1,000,000 Fixed manufacturing overhead 1.25 1,250,000 Variable selling expenses 250,000 Totals $5.00 $5,000,000 The Canadian Armed Forces (CAF) has approached Hardy Fibre and expressed an interest in purchasing 200,000 Y-Go undergarments for soldiers stationed in extremely warm climates. The CAF would pay the unit cost for direct materials, direct labour, and variable manufacturing overhead costs. In addition, the CAF has agreed to pay an additional $1 per undergarment to cover all other costs and provide a profit. Presently, Hardy Fibre is operating at 70% capacity and does not have any other potential buyers for Y-Go. If Hardy Fibre accepts the CAF's offer, it will not incur any variable selling expenses for this order. Instructions a. Using incremental analysis, determine whether Hardy Fibre should accept the CAF's offer. b. Assume Hardy Fibre can now sell one million undergarments in the open market at $8 per unit. Using incremental analysis, determine whether Hardy Fibre should accept the CAF's offer for the 200,000 garments. E7.21 (LO 3) SY Telc has recently started to manufacture RecRobo, a three-wheeled robot that can scan a home for fires and gas leaks and then transmit this information to a mobile phone. The cost structure to manufacture 20,000 RecRobos is as follows: Prepare an incremental analysis for the make-or-buy decision. Cost Direct materials ($35 per robot) $ 700,000 Direct labour ($30 per robot) 600,000 Variable overhead ($10 per robot) 200,000 Allocated fixed overhead ($25 per robot) 500,000 Total $2,000,000 SY Telc is approached by Chen Inc., which offers to make RecRobo for $80 per unit or $1.6 million. Instructions a. Using incremental analysis, determine whether SY Telc should accept this offer under each of the following independent assumptions: 1. Assume that $400,000 of the fixed overhead cost is avoidable. 2. Assume that none of the fixed overhead is avoidable. However, if the robots are purchased from Chen Inc., SY Telc can use the released productive resources to generate additional income of $200,000