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.

Answer 1

	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