Stretch Yoga pants sell for $92 a pair. Stretch Inc.'s costs for manufacturing a pair of yoga pants are presented below. Stretch Inc. receives an offer from Yoga-Iz-Us for a one-time order of 15,000 pair of yoga pants at $65 a pair. Stretch Inc. has enough normal capacity to accomodate the order. Yoga-Iz-Us is outside Stretch's normal market. No additional variable selling expense is expected.

Direct Materials: $28

Direct Labor: 10

Variable Manufacturing Overhead: 9

Variable Selling Expense: 1

Fixed Manufacturing Overhead: 22

Total Cost per pair: $70

(a) Based on financial information only, would you accept this offer? Yes or No answer only.

(b) Prepare a brief financial analysis to support your answer to question (a).

'(c) Stretch's marketing manager argues that accepting this special offer would be a bad decision because the offer price of $65 is less than the cost to make a pair ($70). How would you respond to the marketing manager?

Stretch Inc. sells both yoga pants and yoga mats. Managers for Stretch are concerned about their operating losses. They are considering dropping their yoga mat product line. Operating income by prouct line and in total is shown below. 1) Prepare a new operating income analysis assuming Stretch will only sell yoga pants. 2) Then explain why Stretch should drop or not drop the yoga mat product line based on your analysis. All fixed costs are allocated fixed costs.

Stretch Inc.

Income Statement

For year ended December 31, 2020

	Total		Yoga Pants		Yoga Mats
Sales Revenue	$ 425,000		$ 299,000		$ 126,000
Variable Costs	221,000		136,000		85,000
Contribution Margin	204,000		163,000		41,000
Fixed Costs:
Fixed Manufacturing	127,000		62,000		65,000
Selling & Administrative	64,000		46,000		18,000
Operating Income	13,000		55,000		(42,000)
Stretch Inc.
Income Statement
For year ended December 31, 2020
	Total
Sales Revenue
Variable Costs
Contribution Margin
Fixed Costs:
Fixed Manufacturing
Selling & Administrative
Operating Income
Explanation: