Wesco Incorporateds only product is a combination fertilizer/weedkiller called GrowNWeed. GrowNWeed is sold nationwide to retail nurseries and garden stores.

Zwinger Nursery plans to sell a similar fertilizer/weedkiller compound through its regional nursery chain under its own private label. Zwinger does not have manufacturing facilities of its own, so it has asked Wesco (and several other companies) to submit a bid for manufacturing and delivering a 26,000-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 require 40 direct labor-hours and the following chemicals:

Chemicals Quantity in Pounds AG-5 380 KL-2 210 CW-7 130 DF-6 280 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 prevailing market price less $0.11 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 basis without affecting the quality of the Zwinger compound. The BH-3 in inventory has a salvage value of $470 Inventory and cost data for the chemicals that can be used to produce the Zwinger compound are shown below. Actual Price Current per Pound Market Pounds in When Price per Raw Material Inventory Purchased Pound 25,000 AG-5 $0.68 $0.78 KL-2 4,700 $0.54 $0.59 CW-7 8,700 $1.24 $1.44 DF-6 5,880 $0.50 $0.64 BH-3 6.200 $0.63 (Salvage The current direct labor wage rate is $10 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 5.30 per DLH 8.00 per DLH Fixed manufacturing overhead Combined predetermined overhead $13.30 per DLH rate