Question
Oriole 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
Oriole 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 1,000,000 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 | $1.97 | $1,970,000 | ||||
Direct labor | 0.58 | 580,000 | ||||
Variable manufacturing overhead | 1.01 | 1,010,000 | ||||
Fixed manufacturing overhead | 1.50 | 1,500,000 | ||||
Variable selling expenses | 0.34 | 340,000 | ||||
Totals | $5.40 | $5,400,000 |
The U.S. Army has approached Oriole Fiber and expressed an interest in purchasing 249,000 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 $1.07 per undergarment to cover all other costs and provide a profit. Presently, Oriole Fiber is operating at 70% capacity and does not have any other potential buyers for Y-Go. If Oriole Fiber accepts the Armys offer, it will not incur any variable selling expenses related to this order. Prepare an incremental analysis for the Oriole Fiber. (Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).)
Reject Order | Accept Order | Net Income Increase (Decrease) | |||||
---|---|---|---|---|---|---|---|
Revenues | $enter a dollar amount | $enter a dollar amount | $enter the difference between the two previous amounts in the row | ||||
Variable costs: | |||||||
Direct materials | enter a dollar amount | enter a dollar amount | enter the difference between the two previous amounts in the row | ||||
Direct labor | enter a dollar amount | enter a dollar amount | enter the difference between the two previous amounts in the row | ||||
Variable overhead | enter a dollar amount | enter a dollar amount | enter the difference between the two previous amounts in the row | ||||
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 a total amount | $enter a total amount | $enter a total amount |
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