MA case study
Group Case Study 1: Pricing a special order and business ethics
Swift Ltd manufactures one product, a combination fertiliser–weedkiller called Fertikil. The product is sold nationwide to retail nurseries and gardening stores. Taylor Nursery plans to sell a similar fertiliser–weedkiller through its regional nursery chain under its private label.
Taylor has asked Swift to submit a bid for a 25 000 kilogram order of the private brand compound. While the chemical composition of the Taylor compound differs from that of
Fertikil, the manufacturing process is very similar. The Taylor compound would be produced in 1000 kilogram batches. Each batch would require 60 direct labor hours and the following chemicals: The first three chemicals (CW-3, JX-6, MZ-8) are all used in the production of Fertikil. BE-7 was used in a compound that Swift has discontinued. This chemical was not sold or discarded because it does not deteriorate and Swift has adequate storage facilities. Swift could sell
BE-7 at the prevailing market price, less 20 cents per kilogram for selling and handling expenses. Swift also has on hand a chemical called CN-5, 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 quantity of
CN-5 in inventory has a salvage value of $1000. Inventory and cost data for the chemicals that can be used to produce the Taylor compound are as follows:
The current direct labor rate is $14 per hour. The manufacturing overhead rate is established at the beginning of the year using direct labor hours as the base. The predetermined overhead rate for the current year, based on a two-shift capacity of 400 000 total direct labor hours with no overtime, is as follows:
Swift’s production manager reports that the present equipment and facilities are adequate for manufacturing the Taylor compound.
Swift Ltd manufactures one product, a combination fertiliser–weedkiller called Fertikil. The product is sold nationwide to retail nurseries and gardening stores. Taylor Nursery plans to sell a similar fertiliser–weedkiller through its regional nursery chain under its private label.
Taylor has asked Swift to submit a bid for a 25 000 kilogram order of the private brand compound. While the chemical composition of the Taylor compound differs from that of
Fertikil, the manufacturing process is very similar. The Taylor compound would be produced in 1000 kilogram batches. Each batch would require 60 direct labor hours and the following chemicals: The first three chemicals (CW-3, JX-6, MZ-8) are all used in the production of Fertikil. BE-7 was used in a compound that Swift has discontinued. This chemical was not sold or discarded because it does not deteriorate and Swift has adequate storage facilities. Swift could sell
BE-7 at the prevailing market price, less 20 cents per kilogram for selling and handling expenses. Swift also has on hand a chemical called CN-5, 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 quantity of
CN-5 in inventory has a salvage value of $1000. Inventory and cost data for the chemicals that can be used to produce the Taylor compound are as follows:
The current direct labor rate is $14 per hour. The manufacturing overhead rate is established at the beginning of the year using direct labor hours as the base. The predetermined overhead rate for the current year, based on a two-shift capacity of 400 000 total direct labor hours with no overtime, is as follows:
Swift’s production manager reports that the present equipment and facilities are adequate for manufacturing the Taylor compound.