MA case study Essay

732 WordsMar 29, 20143 Pages
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…show more content…
If need be, the Taylor compound could be produced on regular time by shifting a portion of Fertikil production to overtime. Swift’s pay rate for overtime hours is one-and-a half the regular pay rate, or $21.00 per hour. There is no allowance for any overtime premium in the manufacturing overhead rate. Swift’s standard markup policy for new products is 25 per cent of absorption manufacturing cost. Required: 1. Assume Swift Ltd has decided to submit a bid for a 25 000 kilogram order of Taylor’s new compound, to be delivered by the end of the current month. Taylor has indicated that this one-time order will not be repeated. Calculate the lowest price Swift can bid for the order and not reduce its net profit. 2. Independently of your answer to requirement 1, assume that Taylor Nursery plans to place regular orders for 25 000 kilogram lots of the new compound during the coming year. Swift expects the demand for Fertikil to remain strong, so the recurring orders from Taylor will put Swift over its two-shift capacity. However, production can be scheduled so that 60 per cent of each Taylor order can be completed during regular hours, or Fertikil production could be shifted temporarily to overtime so that the Taylor orders could be produced on regular time. Swift’s production manager has estimated that the prices of all chemicals will stabilize at the current market rates for the coming year. All other manufacturing costs are expected to be maintained at the

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