Marshall Co. produced a pilot run of fifty units of a recently developed piston used in one of...

Question:

Marshall Co. produced a pilot run of fifty units of a recently developed piston used in one of its products. Marshall expected to produce and sell 1,915 units annually. The pilot run required an average of 0.55 direct labor hours per piston for 50 pistons. Marshall experienced a seventy nine percent learning curve on the direct labor hours needed to produce new pistons. Past experience indicated that learning tends to cease by the time 800 pistons are produced.

Marshall's manufacturing costs for pistons are as shown below.

Direct labor $14 per direct labour hour
Variable overhead $11 per direct labour hour
Fixed overhead $20 per direct labour hour
Materials $4 per unit

Marshall received a quote of $8.00 per unit from Kytel Machine Co. for the additional 1,840 needed pistons. Marshall frequently subcontracts this type of work and has always been satisfied with the quality of the units produced by Kytel.

If the pistons are manufactured by Marshall Co. then the average direct labor hours per unit for the first 800 pistons (including the pilot run) produced is calculated to be (use five decimal places in calculating the average time):

a) 0.27117

b) 0.34326

c) 0.16924

d) 0.43450

e) 0.21423

Learning Curve:

Learning curve is the increase in efficiency as experience increases. As a task is performed repeatedly, the time required gradually decreases. This is important in cost accounting because this implies that a higher labor cost will occur at the learning phase of a certain task.

Answer and Explanation:

The 79% learning curve implies that time is reduced by 79% every time the units produced are doubled.

Size Average Time
50 0.55 labor hour
100 0.4345
200 0.34326
400 0.27117
800 0.21423

Thus, the answer is e. 0.21423.


Learn more about this topic:

Loading...
The Role of Cost Accounting in Management

from NYSTCE Business and Marketing (063): Practice and Study Guide

Chapter 14 / Lesson 9
21K

Related to this Question

Explore our homework questions and answers library