Wesco tncorporated's only product is a combination fertilizer$/$weedkiller called GrowNWeed. GrowNWeed is sold nationwide to retail

nurseries and garden stores.

Zwinge: Nursery pians to sell a similar fertilizer$/$weedkiller compound through its regional nursery chain under its own private label.

Zwinger does not have manufacturing faclities of its own, so it has asked Wesco $($and several other companies$)$ to submit a bid for

manufacturing and delivering a $25,000-$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 $33$ 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 compund

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\mathrm{.}09$ per pound selling and

hancling 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 $$490.$

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

Actual Price

per Pound Current

When Market Price

Pounds in

Purchased per PoundThe 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:

Wesco's 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. However, Wesco is within $120$ hours of its two$-$

shift capacity this month. Any additional hours beyond the $120$ 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 $$21$ per hour. There is no allowance for any overtime premlum in the predetermined overhead rate.

Required:

Wesco has decided to submit a bid for the $25,000$ pound order of Zwinger's new compound. The order must be delivered 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 $25,000-$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$-$shif 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.