Question

3. As a logistics manager you are also responsible for selling your products and negotiate your selling prices. A local army unit places an order for 400 units of AK99 that you specially designed. Your cost structure is as follows: Material cost $60, labor cost $100 (based on 5 hours of labor @S20/hour), overhead cost is 50% of the labor and material costs, and profit is added as 20% of the three costs Based on the quality and usefulness of your product, the army unit orders an additional 3000 units of AK99. You negotiate that the production learning rate is 90% a. How much will you charge for the new order of 3000 units of AK99? have b. What will be your unit price? c. Suppose your material supplier gives you a 10% discount on the second order hecause of yor Large order what

Answer 1

a.

Note: here production has learning rate of 90%. Assume its learning for labor hour.

Hence hour required next 3000 unit will be 5 hr*90% = 4.5 hr

Statement Showing price charged for new order. Amount in $

Material cost pu	60
Labor cost (4.5*20)	90
Total prime cost	150
Add: Overhead @ 50%	75
Total cost	225
Add: Profit @ 20%	45
Price p.u	270
Price charged for new order of 3000 units(270*3000)	810000

b. Unit price will be $ 270

c. Statement showing unit cost for 2nd order

Material cost pu (60*90%)	54
Labor cost (4.5*20)	90
Total prime cost	144
Add: Overhead @ 50%	72
Total cost p.u	216
Add: Profit @ 20%	43
Price p.u	259

Cost per unit = $ 216