#7

Required information [The following information applies to the questions displayed below] Atwater Chemicals produces an engine additive for machinery. The additive is produced by adding various ingredients to a petroleum-based lubricant. Atwater purchases the lubricant from two suppllers, Woodlawn Petroleum and Spokane Chemicals. The quality of the final product depends directly on the quaily of the lubricant. If the lubricant is "off," Atwater has to dispose of the entire batch. Because all lubricant can be "off," Atwater uses a measure it calls the "yield," which is computed as Yield = Good output Input where the output and input are both measured in barreis. As a benchmark, Atwater expects to get 12 barreis of good output for every 16 barrels of lubricant purchased for a yleid of 75 percent ( =12 barrels of output 16 barrels of lubricant). Data on the two suppliers for the past year follow. Required: Assume that the average quality, measured by the yleld, and prices from the two companies will continue as in the past. What is the effective price for lubricant from the two companies when quality is considered? Note: Do not round Intermedlate calculations. Round your answers to 2 decimal places. The sales manager of Woodlawn Petroleum has proposed to the purchasing manager at Atwater that Woodlawn be given an exclusive contract to supply the lubricant. If it recelves the contract, Woodlawn will guarantee a 75 percent yleld on the lubricant it supplies. Required: a. Assume that the average quality, measured by the yleld, and prices from the two companles will continue as in the past. What is the maximum price for lubricant that Atwater Chemicals should be willing to pay Woodlawn Petroleum under the exclusive contract? Note: Do not round Intermedlate calculations. Round your answer to 2 decimal places