Answer:
Klean Fiber Company
Incremental Analysis for the Special order of 250,500 units of Y-Go undergarments:
Direct materials                                  $2.04         $511,020
Direct labor                                           0.40          100,200
Variable manufacturing overhead       1.04         260,520
Fixed manufacturing overhead            1.02         255,510
Total costs                                         $4.50      $1,127,250
Fixed manufacturing overhead           1.02          255,510
Incremental costs                             $3.48         $871,740
Explanation:
a) Data:
Full Capacity = 1,031,000
The per unit and the total costs at full capacity for Y-Go:
                                                  Per Undergarment       Total
Direct materials                                  $2.04         $2,103,240
Direct labor                                           0.40              412,400
Variable manufacturing overhead       1.04           1,072,240
Fixed manufacturing overhead            1.44           1,484,640
Variable selling expenses                    0.34            350,540
Totals                                                  $5.26       $5,423,060
b: In her decision to accept or reject the special order for 250,500 units of Y-Go undergarments by the U.S. Army, the Klean Fiber Company will only consider the relevant incremental unit cost of $3.48 and not the whole unit cost of $5.26.  The $3.48 cost excludes the fixed overheads or the selling and administrative expenses.