Question

Wesco has decided to submit a bid for the 28,000-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 and still exactly cover its incremental manufacturing costs.

a. $0 (Wesco should not bid as it won't cover incremental costs)
b. The current market price for a similar compound.
c. The total cost of manufacturing the compound.
d. The variable cost per pound of the new compound multiplied by the order quantity.

Answer 1

The lowest price Wesco could bid for the 28,000-pound order while covering its incremental manufacturing costs is the variable cost per pound of the compound multiplied by the quantity of the order.

Step-by-step explanation:

The question asks to calculate the lowest price that Wesco could bid to cover its incremental manufacturing costs for a one-time order of a new compound. In cost accounting, the incremental cost, also known as the marginal cost, is the additional cost incurred to produce additional units of a product. Given that the order must not result in a loss, the lowest bid should at least cover the incremental costs, which usually include direct materials, direct labor, and variable manufacturing overhead.

If Wesco is to bid on this 28,000-pound order, the minimum bid price should be calculated based on the variable cost per pound of manufacturing the new compound (since fixed costs will not change as a result of accepting this order). Therefore, the lowest bid price would be the variable cost per pound multiplied by the order quantity, option (d).