Question: Need help on E20-5 only, thank you The U.S. Army has approached Klean Fiber and expressed an interest in purchasing 250,000 Y-Go undergarments for soldiers
The U.S. Army has approached Klean Fiber and expressed an interest in purchasing 250,000 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 $1 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 Armys offer, it will not incur any variable selling expenses related to this order. Using incremental analysis, determine whether Klean Fiber should accept the Army's offer. Schopp Inc. has been manufacturing its own shades for its table lamps. The company is currently operating at 100% of capacity, and variable manufacturing overhead is charged to production at the rate of 70% of direct labor cost. The direct materials and direct labor cost per unit to make the lamp shades are $4 and $5, respectively. Normal production is 30,000 table lamps per year. A supplier offers to make the lamp shades at a price of $12.75 per unit. If Schopp Inc. accepts the supplier's offer, all variable manufacturing costs will be eliminated, but the $45,000 of fixed manufacturing overhead currently being charged to the lamp shades will have to be absorbed by other products. (a) Prepare the incremental analysis for the decision to make or buy the lamp shades. (b) Should Schopp Inc. buy the lamp shades? (c) Would your answer be different in (b) if the productive capacity released by not making the lamp shades could be used to produce income of $25,000? Jobs, Inc. has recently started the manufacture of Tri-Robo, a three-wheeled robot that can scan a home for fires and gas leaks and then transmit this information to a mobile phone. The cost structure to manufacture 20,000 Tri-Robos is as follows. Jobs is approached by Tienh Inc., which offers to make Tri-Robo for $115 per unit or $2, 300,000
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