Pharoah 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 1,046,000 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 $1.99 $2,081,540 Direct labor 0.48 502,080 Variable manufacturing overhead 1.03 1,077,380 Fixed manufacturing overhead 1.53 1,600,380 Variable selling expenses 0.30 313,800 Totals $5.33 $5,575.180 The U.S. Army has approached Pharoah and expressed an interest in purchasing 249,900 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 $0.97 per undergarment to cover all other costs and provide a profit. Presently, Pharoah is operating at 70% capacity and does not have any other potential buyers for Y-Go. If Pharoah accepts the Army's offer, it will not incur any variable selling expenses related to this order.