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Assignment - Learning curve (1)

Z plc faces budgeting challenges due to the need for retraining labor and has received an order for 30 units of a new product, with direct costs outlined. Chair Co is developing a luxury car seat, estimating production costs and planning to adjust pricing based on actual labor time and learning curves. Henry Company is bidding for a kitchen fitting contract, considering labor costs and overheads while applying a learning rate to estimate future kitchen fitting times.

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Shumail Akhund
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© © All Rights Reserved
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Download as XLSX, PDF, TXT or read online on Scribd
8 views

Assignment - Learning curve (1)

Z plc faces budgeting challenges due to the need for retraining labor and has received an order for 30 units of a new product, with direct costs outlined. Chair Co is developing a luxury car seat, estimating production costs and planning to adjust pricing based on actual labor time and learning curves. Henry Company is bidding for a kitchen fitting contract, considering labor costs and overheads while applying a learning rate to estimate future kitchen fitting times.

Uploaded by

Shumail Akhund
Copyright
© © All Rights Reserved
Available Formats
Download as XLSX, PDF, TXT or read online on Scribd
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Z plc experiences difficulty in budgeting process because it finds it necessary to

the need for retraining of labour.


An order for 30 units of new product has been received by Z plc. So far, 14 units
total 240 direct labour hours have been recorded for 14 units. The production m
The company uses standard absorption costing. The direct costs attributed to th
Direct material £30 per unit
Direct labour £6.00 per hour
Variable overheads £0.50 per hour
Required:
(a) Determine the assumption of 80% learning curve is reasonable in this case b
(b) Calculate total cost of the order of 30 units assuming that learning will stop a
ds it necessary to quantify the learning curve effect as new products are introduced. Su

c. So far, 14 units of the same product have been completed for another customer. The
The production manager expects an 80% learning effect for this type of work.
ts attributed to the center in which the units are manufactured and the direct material c

able in this case by using standard formula


earning will stop at 25th unit
introduced. Substantial product changes occur and result in

customer. The first unit required 40 direct labour hours and


work.
direct material costs are as follows.
Chair Co has developed a new type of luxury car seat. The estimated labour tim
units produced. The cost of labour is $15 per hour. The cost of materials and oth
adding a 50% mark-up to the total variable cost per seat, with the labour cost b

Required:
(a) Calculate the price which Chair Co expects to charge for the new seat. Note:

(b) The first phase of production has now been completed for the new car seat.
hours, at which point the learning effect came to an end. Chair Co are planning
Required:
(i) Calculate the actual rate of learning and state whether this means that the la
(ii) Briefly explain whether the adjusted price charged by Chair Co will be higher
to calculate the adjusted price.
mated labour time for the first unit is 12 hours but a learning curve of 75% is expected t
materials and other variable overheads is expected to total $230 per unit. Chair Co plan
the labour cost being based on the incremental time taken to produce the 8th unit.

e new seat. Note: The learning index for a 75% learning curve is –0·415.

he new car seat. The first unit actually took 12·5 hours to make and the total time for th
Co are planning on adjusting the price to reflect the actual time it took to complete the

means that the labour force actually learnt more quickly or less quickly than expected.
Co will be higher or lower than the price you calculated in part (a) above. You are NOT
rve of 75% is expected to apply for the first eight
0 per unit. Chair Co plans on pricing the seat by
oduce the 8th unit.

–0·415.

and the total time for the first eight units was 34·3
it took to complete the 8th unit.

quickly than expected.


(a) above. You are NOT required
Henry Company (HC) provides skilled labour to the building trade. They have re
has not worked for this builder before. Cost information for the new contract is a
Labour for the contract is available. HC expects that the first kitchen will take 24
learning rate will stop and the time taken for the 200th kitchen will be the time
Overheads are absorbed on a labour hour basis. HC has collected overhead info
Hours worked Overhead cost $
Month 1 9,300 115,000
Month 2 9,200 113,600
Month 3 9,400 116,000
Month 4 9,600 116,800
HC normally works around 120,000 labour hours in a year.
HC uses the high low method to analyse overheads.
Required:
(a) Describe FIVE factors, other than the cost of labour and overheads mentione
(b) Calculate the total cost including all overheads for HC that it can use as a b
(c) If the second kitchen alone is expected to take 21·6 man-hours to fit demons
ade. They have recently been asked by a builder to bid for a kitchen fitting contract for a
e new contract is as follows:
itchen will take 24 man-hours to fit but thereafter the time taken will be subject to a 95
n will be the time taken for all the remaining kitchens. Labour costs $15 per hour.
ted overhead information for the last four months and this is shown below:

erheads mentioned above, that HC should take into consideration in calculating its bid.
at it can use as a basis of the bid for the new apartment contract.
ours to fit demonstrate how the learning rate of 95% has been calculated.
ng contract for a new development of 600 identical apartments. HC

e subject to a 95% learning rate. After 200 kitchens are fitted the
per hour.

culating its bid.

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