Question

Exercise 5-46 Learning Curves (LO 5-6) Assume that General Dynamics, which manufactures high-technology instruments for spacecraft, is considering the sale of a navigational unit to a government agency in India that wishes to launch its own communications satellite. The government agency plans to purchase 8 units, although it would also consider buying 16 units. General Dynamics has started a chart relating labor time required to units produced. Unit Produced (X) Time Required to produce the Xth Unit 23,000 hours 16.100 hours 11,270 hours Required: a. Compute the labor time required to produce 8 and 16 units. (Round your answers to the nearest whole number.) hours Time Required to produce 8th unit Time Required to produce 16th unit hours b. Assume that labor time costs $100 per hour. Compare the cost of producing the 1st unit to the cost of producing the 16th unit. What is the percentage of the cost of the 16th unit to the cost of the 1st unit? (Do not round your intermediate calculations. Enter your answer as a percentage rounded to 2 decimal places (i.e., 32.21)) Percentage of cost of 16th unit to 1st unil cost

Answer 1

Ans:

a) The learning rate is 70% for every doubling of output:

Unit Produced(X)    Time Required to Produce the Xth Unit

1 23,000 hours

2 16,100 hours(= 23,000 hours × 0.70)

4 11,270 hours(= 16,000 hours × 0.70)

8 7,889 hours(= 11,270 hours × 0.70)

16 5522 hours(= 7,889 hours × 0.70)

Therefore: Time required to produce 8th unit 7,889 hours

Time required to produce 16th unit 5,522 hours

b) Cost of producing the 1st unit = $2,300,000 (= 23,000 hours × $100 per hour)

Cost of producing the 16th unit = $552,200 (= 5,522 hours × $100 per hour)

= 24% of the 1st unit cost (= $552,000 ÷ $2,300,000)

Ans:The correct option for the answer is option A i.e. $5,500

Total direct labor cost = $ 2 x 6 x 300 = $ 3,600

Fixed cost = Total cost - Direct labor cost = $ ( 9,100 - 3,600) = $ 5,500