60,000 ml of this chemical. Chem 4 was used by the company in one of its brands that it
decided to eliminate. The remaining inventory of Chem 4 was not sold or discarded
because it does not deteriorate and the company has adequate space for its storage.
Schundel Company can sell Chem 4 at the prevailing market price of P0.40 per ml less
P0.10/ml selling and handling costs. Clever’s order would require 5 ml of Chem 4 per
bottle.
The company has a stock of Chem 5. This was used by Schundel Hair Care for its
manufacture of another product that is no longer being produced. Chem. 5, which cannot
be used in Shamcon, can be substituted for Chem 1 on a one-for-one basis without
affecting the quality of the Clever order. There is no problem about the supply of Chem 1.
At present, the company has 20,000 ml of Chem 5 in its inventory, which has a salvage
value of P6,000.
The production of the Clever’s order would require the same direct labor hours per bottle as
in the regular Shamcon. However, at present, the company has only 20,000 direct labor
hours available. The Clever order can be produced if the workers would work overtime,
although an overtime premium of 30% of the regular rate should be paid.
Schundel Hair Care Company’s policy is to price new products at 130% of full manufacturing
cost.
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