Jenco, Inc., manufactures a combination fertilizer-weed killer under the name Fertikil. This is the only product that Jenco produces at present. Fertikil is sold nationwide through normal marketing channels to retail nurseries and garden stores. Taylor Nursery plans to sell a similar fertilizer weed killer compound through its regional nursery chain under its own private label. Taylor does not have manufacturing facilities of its own, so it has asked Jenco (and several other companies) to submit a bid for manufacturing and delivering a 25,000-pound order of the private brand compound to Taylor. While the chemical composition of the Taylor compound differs from that of Fertikil, the manufacturing processes are very similar. The Taylor compound would be produced in 1,000-pound lots. Each lot would require 60 direct labor-hours and the following chemicals:

Chemicals Quantity in Pounds CW-3 400 JX-6 300 MZ-8 200 BE-7 100

The first three chemicals (CW-3, JX-6, and MZ-8) are all used in the production ofFertikil. BE-7 was used in another compound that Jenco discontinued several monthsago. The supply of BE-7 that Jenco had on hand when the other compound wasdiscontinued was not discarded. Jenco could sell its supply of BE-7 at the prevailingmarket price less $0.10 per pound selling and handling expenses.

Inventory and cost data for the chemicals that can be used to produce the Taylor compound are as shown below:

Raw Material Current Market Price Per Pound CW-3

Pounds in Inventory Actual Price per Pound When Purchased 22,000 $0.80 $0.90 JX-6 5,000 0.55 0.60 MZ-8 8,000 1.40 1.60 BE-7 4,000 0.60 0.65 The current direct labor rate is $7 per hour. The manufacturing overhead rate is established at the beginning of the year and is applied consistently throughout the year using direct labor-hours (DLH) as the base. The predetermined overhead rate for the current year, based on a two-shift capacity of 400,000 total DLH with no overtime, is as follows: Variable manufacturing overhead $2.25 per DLH Fixed manufacturing overhead 3.75 per DLH Combined rate $6.00 per DLH Jencos production manager reports that the present equipment and facilities are adequate to manufacture the Taylor compound. Therefore, the order would have no effect on total fixed manufacturing overhead costs. However, Jenco is within 800 hours of its two-shift capacity this month before it must schedule overtime. If need be, the Taylor compound could be produced on regular time by shifting a portion of Fertikil production to overtime. Jencos rate for overtime hours is 1-1/2 times the regular pay rate, or $10.50 per hour. There is no allowance for any overtime premium in the manufacturing overhead rate.

Required: 1. Assume that Jenco, Inc., has decided to submit a bid for a 25,000-pound order of Taylors new compound. The order must be delivered by the end of the current month. Taylor has indicated that this is a one-time order that will not be repeated. Calculate the lowest price that Jenco could bid for the order without reducing its net income. 2. Refer to the original data. Assume that Taylor Nursery plans to place regular orders for 25,000-pound lots of the new compound during the coming year. Jenco expects the demand for Fertikil to remain strong again in the coming year. Therefore, the recurring orders from Taylor would put Jenco over its two-shift capacity of 400,000 hours. However, production could be scheduled such that some of the Fertikil or Taylor production could be shifted to overtime. Jencos production manager has estimated that the prices of all chemicals will stabilize at the current market rates for the coming year; also, the variable and fixed overhead costs are expected to continue at the same rates per direct labor-hour. Jencos standard markup policy for new products is 40% of the full manufacturing cost. Calculate the price that Jenco, Inc. would quote Taylor Nursery for each 25,000-pound lot of the new compound, assuming that it is to be treated as a new product.