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):
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.
|50||0.55 labor hour|
Thus, the answer is e. 0.21423.
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from NYSTCE Business and Marketing (063): Practice and Study GuideChapter 14 / Lesson 9