Exercise 12-4 Ayayai 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 1,031,000 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 $2.04 0.40 1.04 1.44 0.34 $5.26 $2,103,240 412,400 1,072,240 1,484,640 350,540 $5,423,060 Totals The U.S. Army has approached Ayayai and expressed an interest in purchasing 250,100 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 $0.95 per undergarment to cover all other costs and provide a profit. Presently, Ayayai is operating at 70% capacity and does not have any other potential buyers for Y-Go. If Ayayai accepts the Army's offer, it will not incur any variable selling expenses related to this order Prepare an incremental analysis for the Ayayai. (If amount decreases net income then enter the amount using either a negative sign preceding the number e.g. -45 or parentheses e.g. Net Income Increase (Decrease) Reject Order Accept Order 130452s Revenues 1,130,452 Variable costs: Direct materials 510204 Direct labor 100040 Variable overhead 260104 Total variable costs Net income Should Ayayai accept the Army's offer? Army's offer Ayayai should accept the