Klean 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 1,094,000 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 Undergarment Total Direct materials $2.08 $2,275,520 Direct labor 0.44 481,360 Variable manufacturing overhead 0.99 1,083,060 Fixed manufacturing overhead 1.44 1,575,360 Variable selling expenses 0.39 426,660 Totals $5.34 $5,841,960 The U.S. Army has approached Klean Fiber and expressed an interest in purchasing 250,800 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 $0.95 per undergarment to cover all other costs and provide a profit. Presently, Klean Fiber is operating at 70% capacity and does not have any other potential buyers for Y-Go. If Klean Fiber accepts the Army’s offer, it will not incur any variable selling expenses related to this order.
Master Budget
A master budget can be defined as an estimation of the revenue earned or expenses incurred over a specified period of time in the future and it is generally prepared on a periodic basis which can be either monthly, quarterly, half-yearly, or annually. It helps a business, an organization, or even an individual to manage the money effectively. A budget also helps in monitoring the performance of the people in the organization and helps in better decision-making.
Sales Budget and Selling
A budget is a financial plan designed by an undertaking for a definite period in future which acts as a major contributor towards enhancing the financial success of the business undertaking. The budget generally takes into account both current and future income and expenses.
Klean 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 1,094,000 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 Undergarment | Total | |||||
|---|---|---|---|---|---|---|
| Direct materials | $2.08 | $2,275,520 | ||||
| Direct labor | 0.44 | 481,360 | ||||
| Variable manufacturing overhead | 0.99 | 1,083,060 | ||||
| Fixed manufacturing overhead | 1.44 | 1,575,360 | ||||
| Variable selling expenses | 0.39 | 426,660 | ||||
| Totals | $5.34 | $5,841,960 |
The U.S. Army has approached Klean Fiber and expressed an interest in purchasing 250,800 Y-Go undergarments for soldiers in extremely warm climates. The Army would pay the unit cost for direct materials, direct labor, and variable
Prepare an incremental analysis for the Klean Fiber. (Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).)
| Reject Order |
Accept Order |
Net Income Increase (Decrease) |
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|---|---|---|---|---|---|---|---|
| Revenues | $ | $ | $ | ||||
| Variable costs: | |||||||
| Direct materials | |||||||
| Direct labor | |||||||
| Variable overhead | |||||||
| Total variable costs | |||||||
| Net income | $ | $ | $ |
Should Klean Fiber accept the Army's offer?
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