At your Comp4U store, a common computer model has the following cost breakdown:
ID: 340441 • Letter: A
Question
At your Comp4U store, a common computer model has the following cost breakdown:
Parts and materials $900
Labor = 3 hrs x $50/hr 150
Overhead 200
Profit margin 200
Total (price to customer) $1450
A local customer has requested a bid for 20 identical computers. You figure that there is a 90% learning rate possible on the labor. If all other costs stay the same per unit and you want to maintain the same profit amount in dollars per unit, what is the price per unit you would bid to obtain the lowest price?
Explanation / Answer
The first assumption we are making here is that the overhead is the variable overhead cost type i.e. overhead will continue to remain as $200 / item
The only item which will change due to learning rate is the labour hours required.
We will use standard learning curve table to arrive at required.
We need to make additional 20 computers. Therefore we have to calculate ( using learning curve table ) total hours required to make 21 computers and subtract time required to make the first computer.
It is given that the Learning rate = 90%
Labour hours required for the first item = 3 hours
Using learning curve table, total labor hours required to make to 21 computers =4 5.71 hours
Therefore time required to make 20 identical computers
= Time required to make 21 computers – Time required to make first computer
= 45.71 – 3 = 42.71 hours
Therefore average time required to make each of the 20 computers = 42.71/20 = 2.1355 hours
Hence cost of labour for each of the 20 computers = $50 / hour x 2.1355 hours = $106.775
Total cost to make each of the 20 computers
= Per unit parts and material cost + Per unit labor cost + Per unit overhead cost
= $900 + $106.775 + $200
= $ 1206.775
Total price per unit of 20 computers
= Per unit total cost + profit margin $200 / unit
= $1206.775 + 200
= $1406.775
Therefore price per unit we should bid = $1406.775
PRICE PER UNIT WE WOULD BID = $1406.775
PRICE PER UNIT WE WOULD BID = $1406.775
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