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Wesco Incorporated's only product is a combination fertilizer/weedkiller called GrowNWeed. GrowNWeed is sold nationwide to retail...

Question:

Wesco Incorporateds only product is a combination fertilizer/weedkiller called GrowNWeed. GrowNWeed is sold nationwide to reRaw Material AG-5 KL-2 CW-7 DF-6 BH-3 Pounds in Inventory 21,000 4,100 7,900 5, 460 6,200 Actual Price per Pound When Purchas2. Refer to the original data. Assume that Zwinger Nursery plans to place regular orders for 26,000-pound lots of the new com

Wesco Incorporated's only product is a combination fertilizer/weedkiller called GrowNWeed. GrowNWeed is sold nationwide to retail nurseries and garden stores. Zwinger Nursery plans to sell a similar fertilizer/weedkiller compound through its regional nursery chain under its own private label. Zwinger does not have manufacturing facilities of its own, so it has asked Wesco (and several other companies) to submit a bid for manufacturing and delivering a 26,000-pound order of the private brand compound to Zwinger. While the chemical composition of the Zwinger compound differs from that of GrowNWeed, the manufacturing processes are very similar. The Zwinger compound would be produced in 1,000-pound lots. Each lot would require 39 direct labor-hours and the following chemicals: Chemicals AG-5 KL-2 CW-7 DF-6 Quantity in Pounds 320 240 180 260 The first three chemicals (AG-5, KL-2, and CW-7) are all used in the production of GrowNWeed. DF-6 was used in another compound that Wesco discontinued several months ago. The supply of DF-6 that Wesco had on hand when the other compound was discontinued was not discarded. Wesco could sell its supply of DF-6 at the prevailing market price less $0.09 per pound selling and handling expenses. Wesco also has on hand a chemical called BH-3, which was manufactured for use in another product that is no longer produced. BH-3, which cannot be used in GrowNWeed, can be substituted for AG-5 on a one-for-one basis without affecting the quality of the Zwinger compound. The BH-3 in inventory has a salvage value of $470. Inventory and cost data for the chemicals that can be used to produce the Zwinger compound are shown below: Raw Material AG-5 KL-2 CW-7 Pounds in Inventory 21,000 4,100 7.900 Actual Price per Pound When Purchased $ 0.77 $ 0.49 $ 1.37 Current Market Price per Pound $ 0.87 $ 0.54 $ 1.57
Raw Material AG-5 KL-2 CW-7 DF-6 BH-3 Pounds in Inventory 21,000 4,100 7,900 5, 460 6,200 Actual Price per Pound When Purchased $ 0.77 $ 0.49 $ 1.37 $ 0.59 $ 0.67 Market Price per Pound $ 0.87 $ 0.54 $ 1.57 $ 0.59 (Salvage) The current direct labor wage rate is $18 per hour. The predetermined overhead rate is based on direct labor-hours (DLH). The predetermined overhead rate for the current year, based on a two-shift capacity with no overtime, is as follows: Variable manufacturing overhead Fixed manufacturing overhead Combined predetermined overhead rate $ 3.70 7.80 $11.50 per DLH per DLH per DLH Wesco's production manager reports that the present equipment and facilities are adequate to manufacture the Zwinger compound. Therefore, the order would have no effect on total fixed manufacturing overhead costs. However, Wesco is within 110 hours of its two- shift capacity this month. Any additional hours beyond the 110 hours must be done in overtime. If need be, the Zwinger compound could be produced on regular time by shifting a portion of GrowNWeed production to overtime. Wesco's direct labor wage rate for overtime is $27 per hour. There is no allowance for any overtime premium in the predetermined overhead rate. Required: 1. Wesco has decided to submit a bid for the 26,000 pound order of Zwinger's new compound. The order must be delivered by the end of the current month. Zwinger has indicated that this is a one-time order that will not be repeated. Calculate the lowest price that Wesco could bid for the order and still exactly cover its incremental manufacturing costs. 2. Refer to the original data. Assume that Zwinger Nursery plans to place regular orders for 26,000-pound lots of the new compound. Wesco expects the demand for GrownWeed to remain strong. Therefore, the recurring orders from Zwinger would put Wesco over its two-shift capacity. However, production could be scheduled so that 60% of each Zwinger order could be completed during regular hours. As another option, some GrownWeed production could be shifted temporarily to overtime so that the Zwinger orders could be produced on regular time. Current market prices are the best available estimates of future market prices. Wesco's standard markup policy for new products is 40% of the full manufacturing cost, including fixed manufacturing overhead.
2. Refer to the original data. Assume that Zwinger Nursery plans to place regular orders for 26,000-pound lots of the new compound. Wesco expects the demand for GrowNWeed to remain strong. Therefore, the recurring orders from Zwinger would put Wesco over its two-shift capacity. However, production could be scheduled so that 60% of each Zwinger order could be completed during regular hours. As another option, some GrownWeed production could be shifted temporarily to overtime so that the Zwinger orders could be produced on regular time. Current market prices are the best available estimates of future market prices. Wesco's standard markup policy for new products is 40% of the full manufacturing cost, including fixed manufacturing overhead. Calculate the price that Wesco, Inc., would quote Zwinger Nursery for each 26,000 pound lot of the new compound, assuming that it is to be treated as a new product and this pricing policy is followed. Complete this question by entering your answers in the tabs below. LIITUNUTULIULUI Required 1 Required 2 Wesco has decided to submit a bid for the 26,000 pound order of Zwinger's new compound. The order must be delivered by the end of the current month. Zwinger has indicated that this is a one-time order that will not be repeated. Calculate the lowest price that Wesco could bid for the order and still exactly cover its incremental manufacturing costs. (Round all intermediate calculations and final answer to 2 decimal places.) Show less A Lowest price (26,000 pound bid) Required 1 Required 2 >

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Req 1
Salvage value of BH3 $               470
Cost of remaining AG5 used [(26 Lots*320 Pounds)-6,200 Pounds]*$0.87 $            1,844
KL 2: 240*26 Lots*$0.54 $            3,370
CW 7: 180*26 Lots*$1.57 $            7,348
DF-6: 260 Pound*26 lots=6,760 Pounds
(5,460 Inventory)*($0.59-$0.09 Handling charges) $            2,730
Remaining 1,300 units*$0.59 $               767
Total direct materials cost $         16,529
Direct Labor Hours 39 DLH*26 Lots=1,014 DLH
Normal Hours: 110, Hence Overtime 1,014-110=904
110 DLHs × $18.00 per DLH $            1,980
904 DLHs × $27.00 per DLH $         24,408
Total direct labor cost $         26,388
Variable Overhead Cost:
1,014 DLHs × $3.70 per DLH $            3,752
Total relevant cost of the special order=Minimum Price $         46,668
Req 2
AG-5: 8,320 pounds × $0.87 per pound $            7,238
KL-2: 6,240 pounds × $0.54 per pound $            3,370
CW-7: 4,680 pounds × $1.57 per pound $            7,348
DF-6: 6,760 pounds × $0.59 per pound $            3,988
Total direct materials cost $         21,944
60% is regual hours i.e. 1,014*60%=608 Regular and overtime is 1,014-608=406
608 DLHs × $18.00 per DLH $         10,944
504 DLHs × $27.00 per DLH $         13,608
Total direct labor cost $         24,552
Overhead: The full manufacturing cost includes both fixed and variable manufacturing overhead.
Manufacturing overhead applied:
1,014 DLHs × $11.50 per DLH $         11,661
Full manufacturing cost $         58,157
Markup (40% × $58,157) $         23,263
Selling price (full manufacturing cost plus markup) $         81,420
.

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