W 12 Help Save&Exit; Submit 10 4 Wesco Incorporated\'s only product is a combina
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W 12 Help Save&Exit; Submit 10 4 Wesco Incorporated's only product is a combination fertilizer/weedkiller called GrowNWeed. GrowNWeed is sold nationwide to retal nurseries and garden stores. Zwinger Nursery plans to sell a similar fertilizer/weedkil 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 31,000-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. ler compound through its regional nursery chain under its own private label. 10 The Zwinger compound would be produced in 1,000-pound lots. Each lot would require 33 direct labor-hours and the following chemicals Skipped 370 210 140 280 AG-5 DF-6 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 $0.10 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.Explanation / Answer
1) 31000 pounds chemical
no. of lots=31000/1000=31 lots
AG-5 :370 pounds per lot x 31 lots=11,470 pounds
we can subsitute BH-3 FOR AG-5 , WHICH IS 4800 POUNDS , THE SALVAGE VALUE BEING $440 , THEREFOR RELEVANT COST BEING $440
REST 6670 POUNDS(11470-4800) WOULD BE AG-5 @ 0.72 PER POUND
THEREFORE TOTAL COST =440+4802.40(6670*.072)
2)In this part, we calculate the price for recurring orders of 31,000 pounds (31 lots) using the company’s rule of marking up its full manufacturing cost.
AG-5 :370 pounds per lot x 31 lots=11,470 pounds x $ 0.72 per pound
SELLING PRICE(FULL MANUFACTURING COST PLUS MARKUP)
Direct Materials:AG-5 :370 pounds per lot x 31 lots=11,470 pounds
we can subsitute BH-3 FOR AG-5 , WHICH IS 4800 POUNDS , THE SALVAGE VALUE BEING $440 , THEREFOR RELEVANT COST BEING $440
REST 6670 POUNDS(11470-4800) WOULD BE AG-5 @ 0.72 PER POUND
THEREFORE TOTAL COST =440+4802.40(6670*.072)
$5,242.40 KL-2:210 POUNDS PER LOT X31 LOTS= 6510 POUNDSX $0.48 PER POUND $3,124.80 CW-7:140 POUNDS PER LOT X 31 LOTS =4340 POUNDS X 1.58 PER POUND $6,857.20 DF-6:280 PUNDS PER LOT X 31 LOTS=8,680 POUNDS. USE 7180 POUNDS IN INVENTORY @0.43 (0.53 market price -0.10 handling expenses), therfore 7,180*0.43=$3087.40 rest 1500 pounds buy from market @ 0.53 = $795. total cost =3087.40+795=$3,882.40 $3,882.40 total direct material cost $19,106.80 direct laboour :33 direct labour hours per lot x 31 lots=1,023 hours ,Because only 360 hours can be scheduled during regular time this month, overtime would have to be used for the remaining 663 hours overtime 360 hours x $ 10 per hour 3,600 663 hours x $ 15 per hour 9,945 total direct labour cost $13,545 Overhead: This special order will not increase fixed overhead costs. Therefore, only thevariable overhead is relevant. 1023 hours x $4.80 per direct labour hours $4910.40 total relevant cost for the order $37,562.20
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