Kristaps Incorporated's only product is a combination fertilizer/weedkiller called Grow&Weed. Grow&Weed is sold nationwide to retail nurseries and garden stores. Harden Nursery plans to sell a similar fertilizer/weedkiller compound through its regional nursery chain under its own private label. Harden does not have manufacturing facilities of its own, so it has asked Kristaps (and several other companies) to submit a bid for manufacturing and delivering a 20,000- pound order of the private brand compound to Harden. While the chemical composition of the Harden compound differs from that of Grow&Weed, the manufacturing processes are very similar. The Westbrook compound would be produced in 1,000-pound lots. Each lot would require 25 direct labor-hours and the following chemicals: Chemicals Quantity in Pounds AG-5 300 KL-2 200 CW-7 150 DF-6 175 The first three chemicals (AG-5, KL-2, and CW-7) are all used in the production of Grow&Weed. DF- 6 was used in another compound that Kristaps discontinued several months ago. The supply of DF-6 that Kristaps had on hand when the other compound was discontinued was not discarded. Kristaps could sell its supply of DF-6 at the prevailing market price while incurring $0.10 per pound selling and handling expenses. Kristaps 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 Grow&Weed, can be substituted for AG-5 on a one-for-one basis without affecting the quality of the Harden compound. The BH-3 in inventory has a salvage value of $600. Inventory and cost data for the chemicals that can be used to produce the Harden compound are shown below: Pounds in Actual Price per Pound Current Market Raw Material Inventory When Purchased Price per Pound AG-5 18,000 $1.15 $1.20 KL-2 6,000 $1.10 $1.05 CW-7 7,000 $1.35 $1.35 DF-6 3,000 $0.80 $0.70 BH-3 3,500 $0.90 (Salvage) The current direct labor wage rate is $14 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. S 3.00 per DLH Fixed manufacturing overhead 10.50 per DLH Combined predetermined overhead rate $ 13.50 per DLH Kristaps's production manager reports that the present equipment and facilities are adequate to manufacture the Harden compound. Therefore, the order would have no effect on total fixed manufacturing overhead costs. However, Kristaps is within 400 hours of its two-shift capacity this month. Any additional hours beyond the 400 hours must be done in overtime. If necessary, the Harden compound could be produced on regular time by shifting a portion of Grow&Weed production to overtime. Kristaps's direct labor wage rate for overtime is $21 per hour. (There is no allowance for any overtime premium in the predetermined overhead rate.) Required: A. Kristaps has decided to submit a bid for the 20,000-pound order of Harden's new compound. The order must be delivered by the end of the current month. Harden has indicated that this is a one-time order that will not be repeated. Calculate the lowest price that Kristaps could bid for the order without reducing its net operating income. (10 points) B. Assume that Harden Nursery plans to place regular orders for 20,000-pound lots of the new compound. Kristaps expects the demand for Grow&Weed to remain strong. Therefore, the recurring orders from Harden would put Kristaps over its two-shift capacity. However, production could be scheduled so that 90% of each Harden order could be completed during regular hours. As another option, some Grow&Weed production could be shifted temporarily to overtime so that the Harden orders could be produced on regular time. Current market prices are the best available estimates of future market prices. Kristaps's standard markup policy for new products is 40% of the full manufacturing cost, including fixed manufacturing overhead. Calculate the price that Kristaps, Inc., would quote Harden Nursery for each 20,000-pound lot of the new compound, assuming that it is to be treated as a new product and this pricing policy wed. (10 points)