Ledgermaine Company uses labor standards in planning and controlling the manufacture of its products. Based on past experience, the company considers the effect of an 80% learning curve when developing standards for direct labor costs.
The company is planning the production of an automatic electrical timing device requiring the assembly of purchased components. Production is planned in lots of 5 units each. A steady-state production phase with no further increases in labor productivity is expected after the eighth lot. The first production lot of 5 units required 90 hours of direct labor time at a standard rate of $9 per hour.
Required:
(1) Compute the standard amount the company should establish for the total direct labor cost required for the production of the first 8 lots.
(2) Discuss the factors that should be considered in establishing the direct labor standards for each unit of output produced beyond the first 8 lots.