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 27,000-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: Chemicals AG-5 KL-2 CW-7 DF-6 Quantity in Pounds 340 240 150 270 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 $440. Inventory and cost data for the chemicals that can be used to produce the Zwinger compound are shown below:

Answer 1

Answer 1

Statement of Relevant Cost
Materials:
AG-5	$     3,160.80
KL-2	$     2,592.00
CW-7	$     6,358.50
DF-6	$     2,478.60
Total Materials	$ 14,589.90
Labor:
Normal	$     1,440.00
Overtime	$ 13,878.00
Total Labor	$ 15,318.00
Variable Overheads	$     3,920.40
Total relevant Cost	$ 33,828.30

Calculations:

Statement of Relevant Cost		Calculations
Materials:
AG-5	$     3,160.80	440+(3580*0.76)
KL-2	$     2,592.00	6480*0.4
CW-7	$     6,358.50	4050*1.57
DF-6	$     2,478.60	(0.45-0.11)*7290
Total Materials	$ 14,589.90
Labor:
Normal	$     1,440.00	120*12
Overtime	$ 13,878.00	771*18
Total Labor	$ 15,318.00
Variable Overheads	$     3,920.40	891*4.4
Total relevant Cost	$ 33,828.30

Answer 2

Statement of price
Material	$ 14,589.90
Labor:
Normal	$     6,415.20
Overtime	$     6,415.20
Total Labor	$ 12,830.40
Overheads	$ 10,870.20
Total Cost	$ 38,290.50
Profit	$ 15,316.20
Selling Price	$ 53,606.70

Calculations:

Statement of price		Calculations
Material	$ 14,589.90
Labor:
Normal	$     6,415.20	891*0.6*12
Overtime	$     6,415.20	891*0.4*12
Total Labor	$ 12,830.40
Overheads	$ 10,870.20	891*12.2
Total Cost	$ 38,290.50
Profit	$ 15,316.20
Selling Price	$ 53,606.70

Note:

Total Requirements of materials
AG-5	9,180.00
KL-2	6,480.00
CW-7	4,050.00
DF-6	7,290.00
BH-3 available	5,600.00
AG-5 to be purchased	3,580.00
Labor hours per lot	33.00
Lots	27.00
Total Labor hours	891.00
Hours available	120.00
Overtime	771.00

In case of any doubt, please comment.