The labor cost to produce a certain item is $8.50 per hour. Job setup costs $50

Question

The labor cost to produce a certain item is $8.50 per hour. Job setup costs $50 and material costs are $20 per unit. The item can be purchased for $88.50 per unit. The learning rate is 90 percent. Overhead is charged at a rate of 50 percent of labor, materials, and setup costs.

Determine the average unit cost for 20 units, given that the first unit took 5 hours to complete. (Round your intermediate calculations and final answer to 3 decimal places. Omit the "$" sign in your response.)

What is the minimum production quantity necessary to make production cost less than purchase cost? (Round your intermediate calculations to 3 decimal places and final answers to the nearest whole number.)

a.

Determine the average unit cost for 20 units, given that the first unit took 5 hours to complete. (Round your intermediate calculations and final answer to 3 decimal places. Omit the "$" sign in your response.)

Explanation / Answer

Explanation:

While estimating standard time of doing a job, some extra allowances are provided on the basis of nature of work. In this connection, different factors, like monotony, light, awkwardness, muscular force required etc are taken into consideration. Calculation of this allowance is shown below:

1. Personal allownce is a basic allowance. It has been allowed for alll jobs. It is fixed at 5%

2. Basic Fatigue allowance of 4% is also common. It is allowed in all jobs.

3. Standing: 2% allowance is common for all standing jobs. further it will increase on the basis of awkwardness. As the job standing is slighlt awkward no extra variable allowance has been provided here.

4. Lifting: Any work requiring muscular or force energy will be provided lifting allowance. It will vary on the basis of weight lifted. Here 25 lbs weight has been lifted. So 4% lifting allowance has been provided.

5. Bad light: It is available only when light is well below the recommended level. Here light is slightly below the recommended level. Hence it has not been allowed.

6. Noise level: A continuos noise is common in production activities. So no extra allowance is provide for it. But here the noise is intermittant loud in nature a 2% allowance is provided.

7. Monotony: It is low for this work. So no extra allowance is required.

Factor % Personal 5 Fatigue 4 Standing 2 Lifting 4 Bad light 0 Noise Level 2 Monotony 0 Total 17

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