Sandhill 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 1,074,000 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 $2.06 2,212,440

Direct Labor 0.50 537,000

Variable manufacturing overhead 1.01 1,084,740

Fixed manufacturing overhead 1.50 1,611,000

Variable selling expenses 0.32 343,680

Totals $5.39 $5,788,860

The U.S. Army has approached Sandhill and expressed an interest in purchasing 250,500 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 $1.01 per undergarment to cover all other costs and provide a profit. Presently, Sandhill is operating at 70% capacity and does not have any other potential buyers for Y-Go. If Sandhill accepts the Army's offer, it will not incur any variable selling expense related to this order.

Prepare an incremental analysis for the Sandhill.

Reject Order Accept Order Net Income Increase (Decrease)

Revenues

Variable costs:

Direct materials

Direct labor

Variable overhead

Total variable costs

Net income