Zylar's production schedule calls for 13,600 direct-labor hours per month during the first quarter. If Zylar...

  

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Zylar's production schedule calls for 13,600 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 16,100 direct-labor 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 $13,600 and the following cost structure. Direct material Direct labor (300 hours at $17) Manufacturing overhead (300 hours at $13) Total cost $ 2,680 5,100 3,900 $11,680 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 5,010,000 bottles annually. Its present equipment has a maximum capacity of 4,580,000 bottles with a directly traceable cash outlay cost of 16 cents per bottle. Thus, Lyan had to purchase 430,000 bottles from a supplier at 49 cents each. The new equipment would allow Lyan to manufacture its entire annual demand for bottles at a direct-material cost savings of 2 cents per bottle. Zylar estimates that Lyan's annual bottle demand will continue to be 5,010,000 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. (Do not round intermediate calculations.) 1. Standard pricing policy bid 2. Minimum bid Zylar's production schedule calls for 13,600 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 16,100 direct-labor 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 $13,600 and the following cost structure. Direct material Direct labor (300 hours at $17) Manufacturing overhead (300 hours at $13) Total cost $ 2,680 5,100 3,900 $11,680 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 5,010,000 bottles annually. Its present equipment has a maximum capacity of 4,580,000 bottles with a directly traceable cash outlay cost of 16 cents per bottle. Thus, Lyan had to purchase 430,000 bottles from a supplier at 49 cents each. The new equipment would allow Lyan to manufacture its entire annual demand for bottles at a direct-material cost savings of 2 cents per bottle. Zylar estimates that Lyan's annual bottle demand will continue to be 5,010,000 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. (Do not round intermediate calculations.) 1. Standard pricing policy bid 2. Minimum bid

Answer rating: 100% (QA)

Answer 1 Zylars standard pricing policy for specialpurpose equipment is to charge its customers a to... View the full answer