Assume the same information for Northern Defense as in Exercise 10-28, except that Northern Defense uses an 85% incremental unit-time learning model as a basis for predicting direct manufacturing labor-hours. (An 85% learning curve means b = -0.234465.)

In Exercise 10-28, Northern Defense manufactures radar systems. It has just completed the manufacture of its first newly designed system, RS-32. Manufacturing data for the RS-32 follow:

Required

1. Calculate the total variable costs of producing 2, 3, and 4 units.

2. If you solved Exercise 10- 28, compare your cost predictions in the two exercises for 2 and 4 units. Why are the predictions different? How should Northern Defense decide which model it should use?

Transcribed Image Text:

B Direct material cost Direct manufacturing labor time for first unit Learning curve for manufacturing labor time per radar system Direct manufacturing labor cost Variable manufacturing overhead cost $ 84,000 per unit of RS-32 4,400 direct manufacturing labor hours 85% cumulative average time² 27 per direct manufacturing labor-hour 13 per direct manufacturing labor-hour "Using the formula (p 390), for an 85% leaming curve, b = In 0.85 In 2 -0.162519 0.693147 -0.234465 !3!