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HELP ME! Integrative case: relevant costs; pricing jenco, Inc, manufacture a combination fertil-izer-weed killer under the name Fertikil.

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Integrative case: relevant costs; pricing jenco, Inc, manufacture a combination fertil-izer-weed killer under the name Fertikil. This is the only product that Jenco produces at present. Fertikil is sold nationwide through normal marketing channels to retail nurseries and garden stores.
Taylor Nursery plans to sell a similar fertilizer- weed killer compound though its regional nursery chain under its own private label. Taylor does not have manufactur-ing facilities of its own, so it has asked Jenco (and several other companies) to submit a bid for the price that would be charged for manufacturing and delivering a 25000-pound order of the private brand compound to Taylor. While the chemical composi-tion of the taylor compound differs from that of Fertikil, the manufacturing pro-cesses are very similar.
The Taylor compound would be produces in 1000-pound lots. Each lot would require 60 direct labor-hours and the following chemicals:
Chemicals quantity in pounds
CW-3………………………………..400
JX-6…………………………………300
MZ-8…………………………………200
BE-7……………………………………100
The 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 month ago. The supply of BE-7 that jenco had on hand when the other compound was discontinued was not discarded because BE-7 does not deteriorate and there have been adequate storage facilities available. Jenco could 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 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 the chemicals that can be used to produce the Taylor compound are as shown below:





Raw material pounds in inventory Actual price per pound Current market price per pound
when purchased
CW-3…………….22000 $0.80 $0.90
JX-6………………5000 0.55 0.60
MZ-8……………..8000 1.40 1.60
BE-7……………….4000 0.60 0.65
CN-5……………….5500 0.75 (salvage)
T he current direct labor rate is $7 per hour. The manufacturing overhead rate is established at the beginning of the year and is applied consistently throughout the year using direct labor-hours (DLH) as the base. The predetermined overhead rate for the current year, based on a two-shift capacity of 400000 total DLH with no overtime, is as follows:
variable manufacturing overhead........$2.25 per DLH
Fixed manufacturing overhead............3.75 per DLH
Combined rate.........................................$6.00 per DLH
Jenco’s production manager reports that the present equipment and facilities are adequate to manufacture the Taylor compound. However, jenco is within 800 hours of its two-shift capacity this month before it must schedule overtime. If need be, the Taylor compound could be produced on regular time by shifting a portion of Ferikil production to overtime. Jenco’s rate for overtime hours is 1 ½ times the regular pay rate, or $10.50 per hour. There is no allowance for any overtime premium in the manufacturing overhead rate.
Jenco’s standard markup policy for new products s 40 percent of the full manu-facturing cost.
Required:
1. Assume that Jenco, Inc… has decided to submit a bid for a 25000-pound order of Taylor’s new compound. The order must be delivered by the end of the current month. Taylor has indicated that this is a one-time order that will not be re-peated. Calculate the lowest price that Jenco could bid for the order without reducing its net income.
2. Refer to the original data. Assume that Taylor nursery plans to place regular orders for 25000-pound lots of the new compound during the coming year.Jenco expects the demand for Fertikil to remain strong again in the coming year. Therefore, the recurring orders from Taylor would put Jenco over its two-shift capacity. However, production could be scheduled so that 60 percent of each taylor order could be completed during regular hours. As another option, some Fertikil production could be shifted temporarily to overtime so that the Taylor orders could be produced on regular time. Jenco’s production manage has estimated that the prices of all chemicals will stabilize at the current market rates for the coming year; also, the variable and fixed overhead costs are ex-pected to continue at the same rates per direct labor-hour.
Calculate the price that jenco, Inc.., should quote taylor nursery for each 25000-pound lot of the new compound, assuming that it is to be treated as a new product and that there will be recurring orders during the coming year.

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