Question

My 3 seperate questions coincide. can see last posts for more needed information or could answer all questions on one. Thanks!

The ABC Corporation has purchased 50 pieces of a specially designed electronic component at $2,000 per unit. In the $2,000 selling price, $1,000 represents direct labor. An audit of product costs for the first 50 units established that the operation is subject to an 80 percent cumulative average learning curve. What should ABC pay for the purchase of 350 more units? Solution:

Answer 1

IncrementalCumulative Average cost Qty Qty p.u 50 50 1,000 $ 100 150 800 (1000*80%) $ 640 200 350 (800*80%) Hence at 80% learning curve, ABC Corporation may pay at $640 for Direct labor and $1,000 for other costs. Hence, the total selling price shall be $1,640 p.u ABC Corporation may suggest to increase the production levels, in order to reduce the costs for further lower levels at 80% learning curve.