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Zwinger Nursery plans to sell a similar fertilizer / weedkiller compound through its regional nursery chain under its own private label. Zwinger does not have
Zwinger Nursery plans to sell a similar fertilizerweedkiller 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 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 pound lots. Each lot would requlre dlrect laborhours and the following
chemicals:
The first three chemicals AG KL and CW are all used in the production of GrowNWeed. DF was used in another compound
that Wesco discontinued several months ago. The supply of DF that Wesco had on hand when the other compound was
discontinued was not dlscarded. Wesco could sell its supply of DF at the prevalling market price less $ per pound selling and
handling expenses.
Wesco also has on hand a chemical called which was manufactured for use in another product that is no longer produced. BH
which cannot be used in GrowNWeed, can be substituted for AG on aneforone basis without affecting the quality of the Zwinger
compound. The in inventory has a salvage value of $
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 $ per hour. The predetermined overhead rate is based on direct laborhours DLH The
predetermined overhead rate for the current year, based on a twoshift capacity with no overtime, is as follows:
Variable manufacturing overhead $ per
Fixad manufacturing overhead par
Combined predeternined overhead rate $ per
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 hours of its two
shift capacity this month. Any additional hours beyond the 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 $ per hour. There is no allowance for any overtime premium in the predetermined overhead rate.
Required:
Wesco has decided to subrnit a bid for the 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 onetime order that will not be repeated. Calculate the lowest price that
Wesco could bid for the order and stlll exactly cover Its incremental manufacturing costs.
Refer to the original data. Assurne that Zwinger Nursery plans to place regular orders for 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
twoshlft capaclty. However, production could be scheduled so that 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 available estimates of future market prices.
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