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 1,031,000 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 $2.04 $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

The U.S. Army has approached Klean Fiber and expressed an interest in purchasing 250,500 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 $1.02 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.

Required:
Prepare an incremental analysis for the Klean Fiber.

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.