The Scottie Sweater Company produces sweaters under the "Scottie" label. The company buys raw wool and processes it into wool yarn. Then one spindle of wool yarn can be used to produce one sweater. The market for sweaters is recently depressed, making it necessary for the company to discount the selling price of the sweaters to $30 from the normal $40 price. The costs and revenues associated with sweaters are given below: Selling price... Per Sweater $30.00 Raw materials: Buttons, thread, lining etc. $2.00 Wool yarn.... 16.00 Total raw materials. $18.00 Direct labor.... $5.80 Manufacturing overhead.. $8.70 Total cost per sweater $32.50 Manufacturing profit (loss)... $(2.50) On the other hand, the market for the wool yarn has developed in recent years. A continuing dispute has existed in the Scottie Sweater Company as to whether the yarn should be sold simply as yarn or processed into sweaters. Current cost and revenue data on the yarn are given below: Selling price.. Per Spindle of Yarn $20.00 Raw materials (raw wool).. Direct labor..... $7.00 $3.60 Manufacturing overhead.. $5.40 Manufacturing profit (loss).. $4.00 All the manufacturing overhead costs are fixed and would not be affected even if sweaters were discontinued (i.e., all manufacturing overhead costs are unavoidable fixed costs). As shown above, the manufacturing overhead is assigned to products (yarn or sweaters) on the basis of 150% of direct labor cost. Materials and direct labor costs are variable. Required: (a) What are the incremental revenues and incremental costs for the company to process one spindle of wool yarn into one sweater, rather than selling the wool yarn directly? (5 points) (b) Would you recommend that the wool yarn be sold directly or processed into sweater? (2 points) (c) What is the lowest selling price that the company would accept for a sweater? (3 points)