Compute Maximum Price To Be Paid for Raw Materials ‘The Nerg Fertilizer Company buys special silt and dehydrates, sorts and bales it for sale as powerful fertilizer. The silt is separated into three grades, the separation being dependent upon the relative content of foreign matter. The three grades of fertilizer have the following list prices per ton: (1) $200, (2) $150, and (3) $125.

Standards provide for 110 tons to be purchased for every 100 tons yield of baled fertilizer. Processing costs are $40 per ton of baled fertilizer and handling costs are $5 per ton of silt.

Selling and administrative expenses are 15 percent of sales; target income is 10 percent of sales.

The purchasing agent for the Nerg Company has been offered two carloads of silt at a cost of $80 per ton. Tests indicate that this silt will yield 60 percent of grade 1 and 20 percent each of grades 2 and 3; however, waste will be 10 percent higher than present levels. Should the agent accept this offer in light of the target income?