Question
Ivanhoe 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
Ivanhoe 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 1,094,000 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 | $2.08 | $2,275,520 | ||||
Direct labor | 0.44 | 481,360 | ||||
Variable manufacturing overhead | 0.99 | 1,083,060 | ||||
Fixed manufacturing overhead | 1.44 | 1,575,360 | ||||
Variable selling expenses | 0.39 | 426,660 | ||||
Totals | $5.34 | $5,841,960 |
The U.S. Army has approached Ivanhoe Fiber and expressed an interest in purchasing 250,800 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, Ivanhoe Fiber is operating at 70% capacity and does not have any other potential buyers for Y-Go. If Ivanhoe Fiber accepts the Armys offer, it will not incur any variable selling expenses related to this order. Prepare an incremental analysis for the Ivanhoe Fiber.
Reject Order | Accept Order | Net Income Increase (Decrease) | |||||
---|---|---|---|---|---|---|---|
Revenues | $enter a dollar amount | $enter a dollar amount | $enter a dollar amount | ||||
Variable costs: | |||||||
Direct materials | enter a dollar amount | enter a dollar amount | enter a dollar amount | ||||
Direct labor | enter a dollar amount | enter a dollar amount | enter a dollar amount | ||||
Variable overhead | enter a dollar amount | enter a dollar amount | enter a dollar amount | ||||
Total variable costs | enter a subtotal of the three previous amounts | enter a subtotal of the three previous amounts | enter a subtotal of the three previous amounts | ||||
Net income | $enter the net income in dollars | $enter the net income in dollars | $enter the net income in dollars |
Should Ivanhoe Fiber accept the Army's offer?
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