Sheffield 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 1,002,000 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 UndergarmentTotalDirect materials$2.03$2,034,060Direct labor0.45450,900Variable manufacturing overhead1.101,102,200Fixed manufacturing overhead1.431,432,860Variable selling expenses0.36360,720Totals$5.37$5,380,740

The U.S. Army has approached Sheffield Fiber and expressed an interest in purchasing 250,200 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 $1.09 per undergarment to cover all other costs and provide a profit. Presently, Sheffield Fiber is operating at 70% capacity and does not have any other potential buyers for Y-Go. If Sheffield Fiber accepts the Army's offer, it will not incur any variable selling expenses related to this order.

Below is an incremental analysis for the Sheffield Fiber.(Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).)

Reject

OrderAccept

OrderNet Income

Increase

(Decrease)Revenues$

$

$

Variable costs:Direct materials

Direct labor

Variable overhead

Total variable costs

Net income$

$

$

Should Sheffield Fiber accept the Army's offer?

Sheffield Fiber should

reject

accept

the Army's offer.

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