Learning Curve Analysis Scorpion Manufacturing recently completed and sold an or

Question

Learning Curve Analysis Scorpion Manufacturing recently completed and sold an order for 50 unit that had costs as follows:

Direct Materials $1,500

Direct Labor (1,000 hours @ $8.50) $8,500

Variable Overhead (1,000 hours @ $4)* $4,000

Fixed Overhead** $1,400 $15,400

*Applied on the basis of direct labor hours
**Applied at the rate of 10% of variable cost.

The company has now been requested to prepare a bid for 150 units of the same product. If an 80% learning curve is applicable, Moss Point's total cost on this order of 150 units would be estimated at:

Hints: Learning Curve Formula: Total Time Required=Time Req'd for the first batch of units*(2*LC)^n LC= Learning Curve %, n=number of unit(or batch) doublings

Find the total batch of 200, and subtract out original batch of 50, to find units 51-200.

Explanation / Answer

Bid for 150 units: Step: 1 Find labor hours for 200 units 50 units 1000 hours 100 units 1800 hours (1000*180%) 200 units 3240 hours (1800*180%) Step: 2 Labor hours for 50 units=1000 hours Step:3 Labor hours for 150 units=Step 1-Step 2=3240-1000=2240 hours Step:4 Compute bid for 150 units Direct materials (1500/50)*150 4500 Direct labor (2240*8.50) 19040 Variable overhead (2240*4) 8960 Fixed overhead (4500+19040+8960)*10% 3250 Total cost 35750

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