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.
