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 20,000-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 25 direct labor-hours and the following chemicals:

Chemicals	Quantity in Pounds
AG-5	300
KL-2	200
CW-7	150
DF-6	175

All these kinds of chemicals, above, are usually used in the production of GrowNWeed. Therefore, Wesco has on hand some of them in inventory.

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

Raw Material	Pounds in Inventory	Actual Price per Pound When Purchased	Current Market Price per Pound
AG-5	18,000	$1.5	$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	3.00 Per DLH
Fixed manufacturing overhead	10.50 Per DLH
Combined predetermined overhead rate	13.50 Per DLH

Wescos production manager reports that the present equipment and facilities are adequate to manufacture the Zwinger compound. Therefore, the order would have no effect on total fixed manufacturing overhead costs. Moreover, Wesco is within 600 hours of its two-shift capacity this month. Any additional hours beyond the 600 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. Wescos direct labor wage rate for overtime is $21 per hour. There is no allowance for any overtime premium in the predetermined overhead rate.

Requirements:

1. Calculate the lowest price that Wesco could bid for the order of (20,000 pound) and still exactly cover its incremental manufacturing costs ?

2. Refer to the original data. Assume that the first three chemicals (AG-5, KL-2, and CW-7) are still usable in the production of GrowNWeed. DF-6 was usable 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 $0.10 per pound selling and handling expenses. Calculate the lowest price that Wesco could bid for the order and still exactly cover its incremental manufacturing costs.

3. Refer to the original data. Wesco also has on hand a chemical called BH-3, which was manufactured for use in another product that is no longer produced. Assume that 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 $600. Calculate the lowest price that Wesco could bid for the order and still exactly cover its incremental manufacturing costs.

4. Refer to the original data. Assume that Wescos two-shift capacity for this order was 400 hours, and any additional hours beyond the 400 hours must be done in overtime. Wesco expects the demand for GrowNWeed to remain strong. Therefore, this order from Zwinger would put Wesco over its two-shift capacity. However, production could be scheduled so that 80% of 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. The order would have no effect on total fixed manufacturing overhead costs. Calculate the lowest price that Wesco could bid for the order and still exactly cover its incremental manufacturing costs.

5. Refer to the original data. Assume that Wesco considered buying 2 new machines for its production. Machine (A) costs $5,000 and it will facilitate the production of GrowNWeed and can be used to produce Zwinger order. Machine (B) costs $10,000 and it is necessary to produce Zwinger order. Calculate the lowest price that Wesco could bid for the order and still exactly cover its incremental manufacturing costs.