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GROUP 6-Case-Wesco-Inc.

Wesco calculated the lowest price they could bid for the one-time 20,000 pound order as $23,200 without losing money. For recurring orders, Wesco estimated materials costs of $17,900 and labor costs of either $7,350 if 90% of production was at regular time and 10% overtime, or $7,000 if all production was at regular time. With overhead of $6,750, the full manufacturing cost was $32,000 or $31,650, and applying a 40% markup, the quoted price would be $44,800 or $44,310.

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357 views4 pages

GROUP 6-Case-Wesco-Inc.

Wesco calculated the lowest price they could bid for the one-time 20,000 pound order as $23,200 without losing money. For recurring orders, Wesco estimated materials costs of $17,900 and labor costs of either $7,350 if 90% of production was at regular time and 10% overtime, or $7,000 if all production was at regular time. With overhead of $6,750, the full manufacturing cost was $32,000 or $31,650, and applying a 40% markup, the quoted price would be $44,800 or $44,310.

Uploaded by

Lorena Mae Lasquite
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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4.21.

2021

MBA-2A MANAGERIAL ACCOUNTING

GROUP 6: ESCANAN, REYSA JANE


LEGASPINA, KAREEN JANE
MENCIAS, CHRISTIAN
VASQUEZ, LEMUEL
VERGARA, JAN MARIE

Problem: Case 13-31 ( Integrative Case: Relevant Costs; Pricing )

#1 Wesco has decided to submit a bid for the 20,000 pound order of Zwinger’s new compound. The order must
be delivered by the end of the current month. Zwinger has indicated that this is a one-time order that will not
be repeated. Calculate the lowest price that Wesco could bid for the order without reducing its net
operating income

Solution: A. Material Costs


Materials Costs
Pounds in Current
Needed For 20
Raw Inventory Quantity in Using BH-3 Market
lots
Material (WESCO) Pounds/lot price per
AG-5 18,000 2,500.00 $ 1.20 $ 3,000.00
300 6,000.00
BH-3 3,500 3,500.00 $ 600.00
KL-2 6,000 200 4,000.00 4,000.00 $ 1.05 $ 4,200.00
CW-7 7,000 150 3,000.00 3,000.00 $ 1.35 $ 4,050.00
DF-6 3,000 175 3,500.00 3,000.00 $ 0.60 $ 1,800.00
500.00 $ 0.70 $ 350.00
Total Direct Material Cost $ 14,000.00

B. Labor Cost:
Total DLH / lot = 25 hrs
# of lots = 20 lots
Total DLH = 500 DLH
Because only 400 hours can be scheduled during regular time this month, overtime would have to
be used for the remaining 100 hours

400 DLH × $14.00/DLH = $ 5,600.00


100 DLH × $21.00/DLH = $ 2,100.00
Total DLH Cost = $ 7,700.00

C. Overhead: This special order will not increase fixed overhead costs. Therefore, only the variable
overhead is relevant.

500 DLH × $3.00/DLH = $ 1,500.00

D. TOTAL RELEVANT COST OF THE ORDER

Direct Material Cost = $ 14,000.00


Direct Labor Cost = $ 7,700.00
Overhead Cost = $ 1,500.00
Total Relevant Cost = $ 23,200.00

Therefore, The lowest price Wesco could bid for the one-time special order of 20,000 pounds (20 lots) without
losing money would be $23,200.
#2 Refer to the original data. Assume that Zwinger Nursery plans to place regular orders for 20,000-pound lots of
the new compound. Wesco expects the demand for GrowNWeed to remain strong. Therefore, the recurring
orders from Zwinger would put Wesco over its two-shift capacity. However, production could be scheduled so
that 90% of each Zwinger order could be completed during regular hours. As another option, some
GrowNWeed production could be shifted temporarily to overtime so that the Zwinger orders could be
produced on regular time. Current market prices are the best available estimates of future market prices.

Wesco’s standard mark-up policy for new products is 40% of the full manufacturing cost, including fixed
manufacturing overhead. Calculate the price that Wesco, Inc., would quote Zwinger Nursery for each 20,000
pound lot of the new compound, assuming that it is to be treated as a new product and this pricing policy is
followed.

Solution:
Direct materials:

Because the initial order will exhaust existing inventories of BH-3 and DF-6 and new supplies would have to be
purchased, all raw materials should be charged at their expected future cost, which is the current market price.

Raw Quantity in Quantity for 20 Current Market


Amount
Material Pounds/lot lots Price per pound
AG-5 300 6,000 $ 1.20 $ 7,200.00
KL-2 200 4,000 $ 1.05 $ 4,200.00
CW-7 150 3,000 $ 1.35 $ 4,050.00
DF-6 175 3,500 $ 0.70 $ 2,450.00
Total Direct Materials Cost = $ 17,900.00

Direct labor:

Total DLH / lot = 25 hrs


# of lots = 20 lots
Total DLH = 500 DLH

Option A: 90% at Regular Time, 10% at Overtime


90% of 500DLH = 450 DLH × $ 14.00 = 6,300.00
10% of 500DLH = 50 DLH × $ 21.00 = 1,050.00
Total = $ 7,350.00

Option B: 100% at Regular Time


500 DLH × $ 14.00 = $ 7,000.00

Overhead: The full manufacturing cost includes both fixed and variable manufacturing overhead.

500 DLH × $ 13.50 = $ 6,750.00

Summary :
Option A Option B
Materials Cost $ 17,900.00 $ 17,900.00 -
Labor Cost $ 7,350.00 $ 7,000.00 350.00
Manufacturing Overhead $ 6,750.00 $ 6,750.00 -
Full Manufacturing Cost $ 32,000.00 $ 31,650.00 350.00
Mark -up (40%) $ 12,800.00 $ 12,660.00 140.00
Total $ 44,800.00 $ 44,310.00 490.00

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