Case 3 Jenco Inc - Jenco Incorporated ACC 301 Case#3 Jenco...

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Jenco IncorporatedACC 301 Case #3Jenco Incorporated’s only product is a combination fertilizer-weed killer called Fertikil which is sold nationwide through normal marketing channels to retail nurseries and garden centers.Taylor Nursery plans to sell a similar fertilizer/weed-killer compound through its regional nursery chain under its own private label. Taylor does not have manufacturing facilities of its own, so it has asked Jenco (and several other companies) to submit a bid for manufacturing and delivering a 25,000-pound order of the private brand compound to Taylor. While the chemical composition of the Taylor compound differs from that of Fertikil, the manufacturing processes are very similar.The Taylor compound would be produced in 1,000 pound (batches). Each batch would require 30 direct labor-hours and the following chemicals:ChemicalsQuantity in PoundsCW-3.................................400JX-6....................................300MZ-8..................................200BE-7...................................100The first three chemicals (CW-3, JX-6, and MZ-8) are all used in the production of Fertikil. BE-7 was used in another compound that Jenco discontinued several months ago. The supply of BE-7 that Jenco had on hand when the other compound was discontinued was not discarded. Jenco is able to sell its supply of BE-7 at the prevailing market price less $0.10 per pound selling and handling expenses.Jenco also has on hand a chemical called CN-5, which was manufactured for use in another product that is no longer produced. CN-5, which cannot be used in Fertikil, can be substituted for the CW-3 on a one-for-one basis without affecting the quality of the Taylor compound. The CN-5 in inventory has a salvage value of $500.Inventory and cost data for the chemicals that can be used to produce the Taylor compound are as shown in the following table:Actual Priceper PoundCurrentPounds inWhenMarket PriceRaw MaterialInventoryPurchasedper PoundCW-322,000$0.80$0.90JX-65,0000.550.60MZ-88,0001.401.60BE-74,0000.600.65CN-55,5000.75(Salvage)1
The current direct labor 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 of 400,000 total DLH with no overtime, is as follows:Variable manufacturing overhead...........................$4.50 per DLHFixed manufacturing overhead.................................7.50per DLHCombined rate.................................................................$12.00per DLHJenco’s production manager reports that the present equipment and facilities are adequate to manufacture the Taylor compound. Therefore, the order would have no effect on total fixed manufacturing overhead costs. However, Jenco is within 400 hours of its two-shift capacity this month. Any additional hours beyond 400 hours must be done in overtime. If need be, the Taylor compound could be produced on regular time by shifting a portionof Fertikil production to overtime. Jenco’s rate for overtime hours is 1½ times the regular pay rate, or $21 per hour.

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