Question

Wesco Incorporated's 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 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 require 34 direct labor-hours and the following chemicals: Chemicals AG-5 KL-2 CW-7 DF-6 Quantity in Pounds 300 290 130 280 Rectangular She 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 $0.12 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,

Answer 1

Solution 1:

Chemicals	Pounds per Lot	Pounds required for 32 lots
AG-5	300	9600
KL-2	290	9280
CW-7	130	4160
DF-6	280	8960

Computation of Total Direct Material Cost
	Pounds	Current Market Price	Total
Cost for AG-5:
BH-3 (substitute from inventory)	5200	Salvage Value	$450.00
AG-5 (9600-5200)	4400	$0.73	$3,212.00
Cost for KL-2	9280	$0.41	$3,804.80
Cost for CW-7	4160	$1.48	$6,156.80
Cost for DF-6:
From Inventory DF-6 (0.46-0.12)	7460	$0.34	$2,536.40
Remaining pounds	1500	$0.46	$690.00
Total Cost of Direct Materials			$16,850.00
Computation Direct labor Cost
	Hours Per lot	Hours required for 32 lots
Total Direct Labor Hours	34	1088
Less: Regular working Hours		130
Overtime working hours		958
Direct Labor Cost:
	Hours	Rate	Total
For regular working Hours	130	$12.00	$1,560.00
For Overtime working Hours	958	$18.00	$17,244.00
Total Direct Labor cost			$18,804.00
Variable Overehad cost
	Hours	Rate	Total
Variable overhead cost	1088	$3.80	$4,134.40

Computation of Lowest Bid Price for Zwinger's Order
Total Cost of Direct Materials	$16,850.00
Total Direct Labor cost	$18,804.00
Variable overhead cost	$4,134.40
Lowest Bid Price	$39,788.40

Solution 2:

Computation of Total Direct Material Cost
	Pounds	Current Market Price	Total
Cost for AG-5	9600	$0.73	$7,008.00
Cost for KL-2	9280	$0.41	$3,804.80
Cost for CW-7	4160	$1.48	$6,156.80
Cost for DF-6:	8960	$0.46	$4,121.60
Total Cost of Direct Materials			$21,091.20
Direct Labor Cost:
	Hours	Rate	Total
For regular working Hours (1088*60%)	653	$12.00	$7,836.00
For Overtime working Hours	435	$18.00	$7,830.00
Total Direct Labor cost			$15,666.00
Manufacturing Overehad cost
	Hours	Rate	Total
Variable overhead cost	1088	$3.80	$4,134.40
Fixed overhead cost	1088	$8.40	$9,139.20
Total Overhead cost			$13,273.60

Computation of Lowest Bid Price for Zwinger's Order
Total Cost of Direct Materials	$21,091.20
Total Direct Labor cost	$15,666.00
Variable overhead cost	$13,273.60
Full Manufacturing Costs	$50,030.80
Add: Markup (40%)	$20,012.32
Price to be quoted	$70,043.12