Managerial Accounting: Creating Value in a Dynamic Business Environment
12th Edition
ISBN: 9781260417074
Author: HILTON, Ronald
Publisher: MCGRAW-HILL HIGHER EDUCATION
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Textbook Question
Chapter 15, Problem 49C
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 overhead is applied on the basis of direct-tabor 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 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 $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.
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Chapter 15 Solutions
Managerial Accounting: Creating Value in a Dynamic Business Environment
Ch. 15 - Prob. 1RQCh. 15 - Prob. 2RQCh. 15 - List and briefly describe four major influences on...Ch. 15 - Prob. 4RQCh. 15 - Prob. 5RQCh. 15 - Prob. 6RQCh. 15 - Define the following terms: total revenue,...Ch. 15 - Prob. 8RQCh. 15 - Prob. 9RQCh. 15 - Prob. 10RQ
Ch. 15 - Prob. 11RQCh. 15 - List the four common cost bases used in cost-plus...Ch. 15 - List four reasons often cited for the widespread...Ch. 15 - What is the primary disadvantage of basing the...Ch. 15 - Prob. 15RQCh. 15 - Prob. 16RQCh. 15 - Prob. 17RQCh. 15 - Explain the phrase price-led costing.Ch. 15 - Prob. 19RQCh. 15 - Prob. 20RQCh. 15 - Could tear-down methods be used effectively for...Ch. 15 - Briefly describe the time-and-material pricing...Ch. 15 - Explain the importance of the excess-capacity...Ch. 15 - Prob. 24RQCh. 15 - Describe the following approaches to pricing new...Ch. 15 - Prob. 26RQCh. 15 - Briefly explain the potential negative...Ch. 15 - Prob. 28ECh. 15 - Prob. 29ECh. 15 - Prob. 30ECh. 15 - The marginal cost, marginal revenue, and demand...Ch. 15 - Prob. 32ECh. 15 - Refer to the cost and production data for the Wave...Ch. 15 - Prob. 35ECh. 15 - The following data pertain to Royal Lighting...Ch. 15 - Prob. 37ECh. 15 - Badger Valve and Fitting Company, located in...Ch. 15 - North American Pharmaceuticals, Inc. specializes...Ch. 15 - MPE, Inc. will soon enter a very competitive...Ch. 15 - Prob. 41PCh. 15 - Prob. 42PCh. 15 - Prob. 43PCh. 15 - Alexis Kunselman, president of Pharsalia...Ch. 15 - Southern Tier Heating, Inc. installs heating...Ch. 15 - Omaha Synthetic Fibers Inc. specializes in the...Ch. 15 - Prob. 47PCh. 15 - Prob. 48CCh. 15 - Zylar Industries is a manufacturer of standard and...
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