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 produce1,090,000Y-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$1.94 $2,114,600

Direct labor 0.59 643,100

Variable manufacturing overhead 1.07 1,166,300

Fixed manufacturing overhead 1.46 1,591,400

Variable selling expenses 0.32 348,800

Totals$5.38 $5,864,200

The U.S. Army has approached Klean Fiber and expressed an interest in purchasing249,400Y-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 $1.01per 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.

Incremental analysis for the Klean Fiber