Question

Hereford Company is planning to introduce a new product with an 80 percent learning rate for production for batches of 1,000 units. The variable labor costs are $30 per unit for the first 1,000-unit batch. Each batch requires 100 hours. There are $10,000 in fixed costs not subject to learning.

What is the cumulative total time using the incremental unit-time learning curve to produce 2,000 units?

Select one:

a. 180

b. 100

c. 90

d. 80

Answer 1

Answer : (a) 180 hours

Explaination :

Learning is the process by which anyone gains knowledge , skills and ability . For example when a new product is started performance of A will be not good because he is in the learning process , with the passage of time and through learning and gaining experience his performance will improve .. his productivity will grow up and time taking per product will reduce. This is due to Learning effect.

We have a formula for calculating learning curve ratio = Average labour cost for 2N units / average labour cost for N units.

I.e., If the average labour cost of 500 units is $20, and for 1000 units it is $25

Larning curve ratio = 20/25*100 = 80%

THe learning curve ratio of 80% means , that every time outpput doubles the average cost declines to 80% of previous amount .

here, first 1000 units take time of 100 hours. with learning curve ratio of 80% the time taken for 2000 units will be = 100+100*80% = 180 hours