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.

Zylars pricing policy for custom-designed equipment is 50 percent markup on absorption manufacturing cost. Lyans specifications for the equipment have been reviewed by Zylars Engineering and Cost Management departments, which made the following estimates for direct material and direct labor.

Direct material	$ 261,000
Direct labor (10,320 hours at $19)	196,080

Manufacturing overhead is applied on the basis of direct-labor hours. Zylar normally plans to run its plant at a level of 16,500 direct-labor hours per month and assigns overhead on the basis of 198,000 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	$ 1,386,000
Fixed manufacturing overhead	1,386,000
Total manufacturing overhead	$ 2,772,000

Zylars production schedule calls for 13,500 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 16,500 direct-labor hours each month on short notice. Furthermore, Zylars 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 $13,500 and the following cost structure.

Direct material	$ 2,520
Direct labor (220 hours at $19)	4,180
Manufacturing overhead (220 hours at $14)	3,080
Total cost	$ 9,780

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 5,030,000 bottles annually. Its present equipment has a maximum capacity of 4,580,000 bottles with a directly traceable cash outlay cost of 23 cents per bottle. Thus, Lyan had to purchase 450,000 bottles from a supplier at 43 cents each. The new equipment would allow Lyan to manufacture its entire annual demand for bottles at a direct-material cost savings of 3 cents per bottle. Zylar estimates that Lyans annual bottle demand will continue to be 5,030,000 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.

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

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.

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 201. Note: Do not round intermediate calculations