Question

Question 3

Part A

Reusable Inc uses the sun to provide charging facilities for the rapidly growing electric vehicle market. The traditional methods of charging these vehicles takes too long so a product was designed for a fast charging system which reduces charging time by 50%. It has just completed the prototype for a new model. The information for the Charging system is shown below.

            Direct material cost per unit                                                 $25,000

            Direct labour time for the assembly of first unit in hours          120

            Direct labour cost per hour                                                       $ 80

            Learning effect for design hours per unit                                   90%

            Variable manufacturing overhead 50% of direct labour cost

            Fixed overhead cost per system                                              $500                                          

            (A 90% learning curve implies that b = -0.1520)

The first unit is kept on display. A finished system carries a 10% mark up on variable cost. It is believed that the learning effect is valid only for the first 12 units. All units thereafter take the same time per unit as the 12^th unit.

Required

1. Determine the cumulative average design labour hours for an initial order of 10 units.

                                                           

2. A car dealership in a neighboring Island is interested in installing 10 systems in their location. This would be in addition to the initial order of 10. Prepare a quotation for this dealership considering additional incidental cost of 10% of variable production cost.

Answer 1

Facts:
Direct material cost per unit	$25,000
Direct labour time for the assembly of first unit in hours	120
Direct labour cost per hour	$80
Variable manufacturing overhead	50% of direct labour cost
Fixed overhead cost per system	$500
(A 90% learning curve implies that b = -0.1520)

Learning Curve equation:

where:
Y = Cumulative average time for x units
X = Cumulative number of units produced = 10 units
a = Cost/Time required for first unit   = 120hrs
b = Learning Coefficient = -0.1520

Y =

1) Cumulative average design labour hours for an initial order of 10 units Y = 84.56 hours

2) Total DL cost for initial order of 10 units = 84.56 hrs * 10 units * $80 = $67,650

Total DL cost for the first of 11 units : 11 Units * $6667.75 = $73,345.29

( WN : Y = = $6,667.75 per unit)

  Total DL cost for first 12 units = 12 units * 6580.15 = $78,961.78

( WN : Y = = $6,667.75 per unit)

DIrect Labor Cost of 11th unit = $73,345.29 - $67,650 = $5,695

DIrect Labor Cost of 12th unit =  $78,961.78 - $73,345.29 = $5,616

Since learning effect stops at 12th unit, the DL cost remains same for the rest of 8 units.

DIrect Labor Cost of 13th to 20th units = $5,616 * 8 = $44,931.92
Total Direct Labor Cost of latter 10 units (second order) =  $5,695 + $5,616+ $44,931.92 = $56,244

(i) Quotation Price to Car dealership
Direct Material (25000*10 units)	$250,000
Direct Labour	$56,244	`
Variable Overheads (50% )	$28,122
Variable Production Costs		$334,366
Incidental Costs (10% of VPC)	$33,437
Fixed Overheads (500*10 units)	$5,000	$38,437
Total Cost		$372,802
Mark up(10% on VPC)		33,437
Price per System		$406,239