Question

Part IV-Problems (55 points) A. Highestec, Inc is beginning the production of a new product. Management believes that 500 labor hours will be required to complete the new unit. A 90 percent cumulative average-time learning curve model for direct labor hours is assumed to be valid. Data on costs are as follows: S50,000 per unit s20 per direct labor hour $30 per direct labor hour Direct materials Direct labor Variable manufacturing overhead Required: a. Set up a table with columns for cumulative number of units, cumulative average time per unit in hours, and cumulative total time in hours using the cumulative average-time learning curve. Complete the table for , 2., 4, und 8 units. b. Set up a similar table assuming an 80 percent cumulative average-time learning curve. c. What is the difference in variable cost of producing four units?

Answer 1

Solution -

Some important properties of Learning Curve (LC)

1. LC applies on average time.

2. LC theory applies when the output doubles.

3. It applies to Labour and Variable overheads, not on material cost. (as it relates to manual work not machine work)

At : Goy. Efficiency Cumulative Cumulative number of average units time per unit (Hrs) Cumulative total time CHIS) (C) - (AXB) 500 500 900 450 (500 x 904) 1620 405 (450x904) 2916 364.50 (405x90%)

At 80% efficiency Cumulative number of units Cumulative A verge time per unit (Hrs) Cumulative Total time Curs) C = AB 500 500 H00 (500x So%) 800 1280 320 (400 x 80%) 256 ( 320 x 80 7 2048

(C) Difference units in variable cost of producing h Cost sheet A+90% ($) At 8oy. Material (Hunits x 50,000) 200,000 200,000 Direct Labour 25.600 32,400 (1620 hrst 20$ p.hr) (1280hrs x 203 ) Manufacturing 01H e variable) 48,600 38,400 (128067sx$30pt (1620715 x $302.6) Total variable Cost 281,000 2,64,000 Difference 17000 Answer : $ 17000