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

natiomwide to retall nurserles and garden stores.

Zwinger Nursery plans to sell a similar fertillzer$/$weedkiller compound through its regional nursery chain under its own

private label. Zwinger does not have manufacturing facllitles of its own, so it has asked Wesco $($and several other

companles$)$ to submit a bld for manufacturing and dellvering a $32,000-$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 requlre $35$ direct labor$-$hours and the

following chemicals:

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 prevalling market price

less $$0\mathrm{.}12$ 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 basls without

affecting the quality of the Zwinger compound. The BH$-3$ In Inventory has a salvage value of $$580.$

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

The current direct labor wage rate is $$16$ 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 $$4\mathrm{.}30$ per DLH

Fixed manufacturing overhead $,7\mathrm{.}70$ per DLH

Combined predetermined overhead

rate

$=$$$12\mathrm{.}00$ per $DLH$

Wesco's production manager reports that the present equlpment and facillites are adequate to manufacture the

Zwinger compound. Therefore, the order would have no effect on total foved manufacturing overhead costs. However,

Wesco is within $100$ hours of Its two$-$shift capacity this month. Any additional hours beyond the $100$ 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 $$24$ per hour. There is no allowance for any

overtime premium in the predetermined overhead rate.

Requlred:

Wesco has decided to submit a bid for the $32,000$ pound order of Zwinger's new compound. The order must be

dellvered 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.

Refer to the original data. Assume that Zwinger Nursery plans to place regular orders for $32,000-$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 avallable estimates of future market prices.

Wesco's standard markup pollcy for new products is $40\%$ of the full manufacturing cost, Including flxed manufacturing

overhead. Calculate the price that Wesco, Incorporated, would quote Zwinger Nursery for each $32,000$ pound lot of

the new compound, assuming that it is to be treated as a new product and this pricing pollicy is followed.