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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

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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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