Please help answer just Zylar Industries Case 2 in attached

Case 1 Alberta Gauge Company, Ltd. Alberta Gauge Company, Ltd., a small manufacturing company in Calgary, Alberta, manufactures three types of electrical gauges used in a variety of machinery. For many years the company has been profitable and has operated at capacity. However, in the last two years, prices on all gauges were reduced and selling expenses increased to meet competition and keep the plant operating at capacity. Second-quarter results for the current year, which follow, typify recent experience. Alice Carlo, the company's president, is concerned about the results of the pricing, selling, and production prices. After reviewing the second-quarter results, she asked her management staff to consider the following three suggestions: Discontinue the R-gauge line immediately. R-gauges would not be returned to the product line unless the problems with the gauge can be identified and resolved. Increase quarterly sales promotion by $100,000 on the Q-gauge product line in order to increase sales volume by 15 percent. Cut production on the E-gauge line by 50 percent, and cut the traceable advertising and promotion for this line to $20,000 each quarter. Jason Sperry, the controller, suggested a more careful study of the financial relationships to determine the possible effects on the company's operating results of the president's proposed course of action. The president agreed and assigned JoAnn Brower, the assistant controller, to prepare an analysis. Brower has gathered the following information. All three gauges are manufactured with common equipment and facilities. The selling and administrative expense is allocated to the three gauge lines based on average sales volume over the past three years. Special selling expenses (primarily advertising, promotion, and shipping) are incurred for each gauge as follows: The unit manufacturing costs for the three products are as follows: The unit sales prices for the three products are as follows: The company is manufacturing at capacity and is selling all the gauges it produces. Required: 1. JoAnn Brower says that Alberta Gauge Company's product-line income statement for the second quarter is not suitable for analyzing proposals and making decisions such as the ones suggested by Alice Carlo. Write a memo to Alberta Gauge's president that addresses the following points. a. Explain why the product-line income statement as presented is not suitable for analysis and decision making. b. Describe an alternative income-statement format that would be more suitable for analysis and decision making, and explain why it is better. 2. Use the operating data presented for Alberta Gauge Company and assume that the president's proposed course of action had been implemented at the beginning of the second quarter. Then evaluate the president's proposal by specifically responding to the following points. a. Are each of the three suggestions cost-effective? Support your discussion with an analysis that shows the net impact on income before taxes for each of the three suggestions. b. Was the president correct in proposing that the R-gauge line be eliminated? Explain your answer. c. Was the president correct in promoting the Q-gauge line rather than the E-gauge line? Explain your answer. d. Does the proposed course of action make effective use of the company's capacity? Explain your answer. 3. Are there any qualitative factors that Alberta Gauge Company's management should consider before it drops the R-gauge line? Explain your answer. Case 2 Zyler Industries Zylar Industries is a manufacturer of standard and custom-designed bottling equipment. Early in December 20x0, Lyan Company asked Zylar to quote a price for a custom-designed bottling machine to be delivered in April. Lyan intends to make a decision on the purchase of such a machine by January 1, so Zylar would have the entire first quarter of 20x1 to build the equipment. Zylar's pricing policy for custom-designed equipment is 50 percent markup on absorption manufacturing cost. Lyan's specifications for the equipment have been reviewed by Zylar's Engineering and Cost Management Departments, which made the following estimates for direct material and direct labor. Manufacturing overhead is applied on the basis of direct-labor hours. Zylar normally plans to run its plant at a level of 15,000 direct-labor hours per month and assigns overhead on the basis of 180,000 direct-labor hours per year. The overhead application rate for 20x1 of $9.00 per hour is based on the following budgeted manufacturing overhead costs for 20x1. Zylar's production schedule calls for 12,000 direct-labor hours per month during the first quarter. If Zylar is awarded the contract for the Lyan equipment, production of one of its standard products would have to be reduced. This is necessary because production levels can only be increased to 15,000 directlabor hours each month on short notice. Furthermore, Zylar's employees are unwilling to work overtime. Sales of the standard product equal to the reduced production would be lost, but there would be no permanent loss of future sales or customers. The standard product for which the production schedule would be reduced has a unit sales price of $12,000 and the following cost structure. Lyan needs the custom-designed equipment to increase its bottle-making capacity so that it will not have to buy bottles from an outside supplier. Lyan Company requires 5,000,000 bottles annually. Its present equipment has a maximum capacity of 4,500,000 bottles with a directly traceable cash outlay cost of 15 cents per bottle. Thus, Lyan has had to purchase 500,000 bottles from a supplier at 40 cents each. The new equipment would allow Lyan to manufacture its entire annual demand for bottles at a direct-material cost savings of 1 cent per bottle. Zylar estimates that Lyan's annual bottle demand will continue to be 5,000,000 bottles over the next five years, the estimated life of the special-purpose equipment. Required: Zylar Industries plans to submit a bid to Lyan Company for the manufacture of the special purpose bottling equipment. 1. Calculate the bid Zylar would submit if it follows its standard pricing policy for special-purpose equipment. 2. Calculate the minimum bid Zylar would be willing to submit on the Lyan equipment that would result in the same total contribution margin as planned for the first quarter of 20x1. 3. Suppose Zylar Industries has submitted a bid slightly above the minimum calculated in requirement (2). Upon receiving Zylar's bid, Lyan's assistant purchasing manager telephoned his friend at Tygar Corporation: \"Hey Joe, we just got a bid from Zylar Industries on some customized equipment. I think Tygar would stand a good chance of beating it. Stop by the house this evening, and I'll show you the details of Zylar's bid and the specifications on the machine.\" Is Lyan Company's assistant purchasing manager acting ethically? Explain. Solution 1) Calculation of Bid Zyler would submit Direct material Dirct Labor Manufacturing overherds @ 9 per hour Total Cost Markup at 50% of cost Price to be charged 2) Calculation ofMinimum Bid Zyler would submit Direct material Dirct Labor Variable Overheads @ 5.40 per hour (972000/180000 = 5.40) Opportunity Cost Price to be Charged Calculation of Opportuity cost Revenue Less: Direct material Direct Labor Variable Overheads @ 5.40 per hour Contribution Sales Lost in units (Shortage of direct labor hours/No. Of hours required per unit) Opportunity Cost c) Assistant purchasing manager of Lyan is not acting ethically. He is using unethical practices by showing details of Zylar's bid to his friend at Tygar Corporation. After seeing Zylar's bid the Tygar corporation will code price lower in competition to Zylar and will refrain Zyler from taking the contract. 256000 165000 99000 520000 260000 780000 256000 165000 59400 35200 515600 12000 2500 3750 1350 4400 8 35200 Working Note: Calculation of opportunity cost Normal plant running level/capacity per quarter (3months * 15000) Less: Total direct labor hours required (3 months * 12000) Direct labor hours for Lyan's equipments Shortage of direct-labor hours Number of hours required per unit (as given in question) Sales lost in units (F16/F17) Oppotunity cost (Contribution * Sales lost in units) = 4400*8 45000 36000 11000 -2000 250 8 35200 5.4 Solution 1) Calculation of Bid Zyler would submit Direct material Dirct Labor Manufacturing overherds @ 9 per hour Total Cost Markup at 50% of cost Price to be charged 2) Calculation ofMinimum Bid Zyler would submit Direct material Dirct Labor Variable Overheads @ 5.40 per hour (972000/180000 = 5.40) Opportunity Cost Price to be Charged Calculation of Opportuity cost Revenue Less: Direct material Direct Labor Variable Overheads @ 5.40 per hour Contribution Sales Lost in units (Shortage of direct labor hours/No. Of hours required per unit) Opportunity Cost c) Assistant purchasing manager of Lyan is not acting ethically. He is using unethical practices by showing details of Zylar's bid to his friend at Tygar Corporation. After seeing Zylar's bid the Tygar corporation will code price lower in competition to Zylar and will refrain Zyler from taking the contract. 256000 165000 99000 520000 260000 780000 256000 165000 59400 35200 515600 12000 2500 3750 1350 4400 8 35200 Working Note: Calculation of opportunity cost Normal plant running level/capacity per quarter (3months * 15000) Less: Total direct labor hours required (3 months * 12000) Direct labor hours for Lyan's equipments Shortage of direct-labor hours Number of hours required per unit (as given in question) Sales lost in units (F16/F17) Oppotunity cost (Contribution * Sales lost in units) = 4400*8 45000 36000 11000 -2000 250 8 35200 5.4