I was able to assess the transom yesterday and I think I can work with it. It isn't going to be a typical AS rebuild now. Instead it will have a slightly rounded transom (which might look good?) except for where the bracket mounts. Here is what I did to determine if I needed to cut the whole thing out.
I built a frame around the edge of the transom 1.5" away from the surface (well within the bulge height). I used this frame to scribe the curve that would compensate for the bulge.
Cut out that curve (made it smoother with a bent piece of strapping) and transferred it to 1/2 plywood.
The 1/2 would become a template for the cap.
I left it long because I didn't know how much height I would need in the cap to make it look correct. After bracing it in the center I was able to mark where it needed to be cut.
After deciding the best shape for the curve height I trimmed the excess off.
Remember, this is only a template, not the finished cap piece.
Today I hope to get the knees glassed in and move the bulkhead around for the bilge area. I don't think having a compound curve for the transom is going to be that bad looking. It definitely isn't going to be 100% original. I am just not willing to spend another $500 and two or three weeks fixing this when I think the final result won't be that noticeable. We will see what it looks like when the paint goes on.