Bair Company is a manufacturer of standard and custom-designed bottling equipment. Early in December 20x0 Lyan Company asked Bair 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 Bair would have the entire first quarter of 20x1 to build the equipment.

Bairs pricing policy for custom-designed equipment is 60 percent markup on absorption manufacturing cost. Lyans specifications for the equipment have been reviewed by Bairs Engineering and Cost Management departments, which made the following estimates for direct material and direct labor.

Direct material	$	268,000
Direct labor (12,870 hours at $19)		244,530

Manufacturing overhead is applied on the basis of direct-labor hours. Bair normally plans to run its plant at a level of 16,100 direct-labor hours per month and assigns overhead on the basis of 193,200 direct-labor hours per year. The overhead application rate for 20x1 of $14.00 per hour is based on the following budgeted manufacturing overhead costs for 20x1.

Variable manufacturing overhead	$	1,622,880
Fixed manufacturing overhead		1,081,920
Total manufacturing overhead	$	2,704,800

Bairs production schedule calls for 12,300 direct-labor hours per month during the first quarter. If Bair 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, Bairs 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 $12,300 and the following cost structure.

Direct material	$	2,570
Direct labor (210 hours at $19)		3,990
Manufacturing overhead (210 hours at $14)		2,940
Total cost	$	9,500

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 5,150,000 bottles annually. Its present equipment has a maximum capacity of 4,510,000 bottles with a directly traceable cash outlay cost of 17 cents per bottle. Thus, Lyan has had to purchase 640,000 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 2 cents per bottle. Bair estimates that Lyans annual bottle demand will continue to be 5,150,000 bottles over the next five years, the estimated life of the special-purpose equipment.

Required:

Bair Companys management plans to submit a bid to Lyan Company for the manufacture of the special-purpose bottling equipment.

1.	Calculate the bid Bair would submit if it follows its standard pricing policy for special-purpose equipment.

Standard Pricing Policy Bid = ________

2.	Calculate the minimum bid Bair 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 your intermediate calculations.)

Minimum Bid = _______