Zyler case study

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Zylar Industries
Case
Group-4 SIMATUPANG
Denny Ardhia Mangara
Sebastian Muhammad
Hanif Sabaruddin
Irvan Jauhari

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The Business
 Zylar Industries is a manufacturer of standard and custom-designed
bottling equipment.
 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
Estimate Direct Material & Direct Labor
Direct Material $ 256,000
Direct Labor (11,000 hrs at $15) $ 165,000
Review result

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The Business – Cont’d
 Manufacturing overhead is applied on the basis of direct-labor
hours.
 Zylar normally plans to run its plant at a level of 15,000 DLH
per month and assigns OH on the basis of 180,000 DLH per
year.
 The overhead application rate for 20x1 of $9.00 per hour is
based on the following budgeted manufacturing overhead costs
for 20x1.
Budgeted Manufacturing Overhead Costs For 20x1.
Variable Manufacturing OH $ 972,000
Fix Manufacturing OH $ 648,000
Total Manufacturing OH (a) $ 1,620,000
DL Hours per Year (b) 180,000
OH / Hours (a / b) $ 9.00

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Issues
 Zylar’s has limited production capacity if Zylar is awarded
the job, one of the standard product production would be
reduced.
 For current Zylar’s production requires 12,000 DLH per month
during 1st quarter.
 To fulfill the Lyan’s query, Zylar need to increase 15,000 DLH
each month on short notice.
 Sales for standard product would be lost for $12,000 and yet
there will be no future loss.

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The Demand
 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

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Question#1
 Calculate the bid Zylar would submit if it follows its standard pricing
policy for special-purpose equipment.
BID BASED ON STANDARD PRICING
Direct material $256,000
Direct labor (11,000 DLH @ $15) $165,000
Manufacturing overhead (11,000 DLH @ $9) $99,000
Total manufacturing costs $520,000
Pricing Policy, Markup (50% of full cost) $260,000
Standard pricing policy bid $780,000
Answer #1

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Question#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.
MINIMUM BID
Direct material $256,000
Direct labor (11,000 DLH @ $15) $165,000
Variable manufacturing overhead (11,000 DLH@$5.4) $59,400
Opportunity lost of sales (*) $35,200
Minimum bid $515,600
Answer #2

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* OPPORTUNITY LOSS OF SALES
Selling price per unit of standard product $ 12,000
Variable costs per unit
Direct material $ 2,500
Direct labor (250 DLH @ $15) $ 3,750
Variable overhead (250 DLH @ $5.40) $ 1,350 $ 7,600
Contribution Margin PerUnit $ 4,400
Standard product requirements (12,000 DLH x 3) 36,000 DLH
Special order requirements 11,000 DLH
Total hours required 47,000 DLH
Plant capacity per quarter (15,000 DLH x 3) 45,000 DLH
Shortage in hours 2,000 DLH
Lost unit sales (2,000 DLH ÷ 250 DLH) 8
Lost contribution $ 35,200

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Question#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?

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Answer #3
 It is definitely against the code of conduct. Should company
would like to gain the competitive price, company shall notify to
all bidders at the same time with regard to the specification and
its term and condition.
 Bidders’ proposal must be treated as confidential document
and the document will only be disclosed on the bid opening
date.

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Recommendation
 Zylar has to consider the term and condition of the contract
particularly the penalty due to delay delivery because Zylar has
limited production capacity and knowing that their employee’s
unwilling to work overtime

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Thank you