Jordan Company (JC) provides skilled labour to the building trade. They have recently been asked by a builder to bid for a bathroom fitting contract for a new development of 700 identical apartments. JC has not worked for this builder before. Cost information for the new contract is as follows:
Labour for the contract is available. JC expects that the first kitchen will take 18 man-hours to fit but thereafter the time taken will be subject to a 95% learning rate. After 200 kitchens are fitted the learning rate will stop and the time taken for the 200th kitchen will be the time taken for all the remaining kitchens. Labour costs $12 per hour. Overheads are absorbed on a labour-hour basis. JC has collected overhead information for the last four months and this is shown below:

JC normally works around 100,000 labour hours in a year. JC uses the high–low method to analyse overheads. The learning curve equation is y = a^b, where

Required
(a) Calculate the total cost including all overheads for JC that it can use as a basis of the bid for the new apartment contract.
(b) If the second kitchen alone is expected to take 16.2 man-hours to fit, demonstrate how the learning rate of 95% has been calculated.

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Month 1 Month 2 Month 3 Month 4 Hours worked 7,600 7,500 7,700 7,900 Overhead cost $ 93,978 92,609 95,021 96,117