Global Defender manufactures radar systems. It has just completed the manufacture of its first newly designed system, RS-32. Manufacturing data for the RS-32 follow:

^aUsing the formula (page 402) for a 85% learning curve,

Nonlinear cost functions also result from learning curves, a phenomenon first documented in aircraft assembly. A learning curve is a function that measures how labor-hours per unit decline as units of production increase because workers are learning and becoming better at their jobs. As workers become more familiar with their tasks, their efficiency improves. Managers learn how to more efficiently schedule work and operate the plant. Unit costs decrease as productivity increases, and the unit-cost function behaves nonlinearly. These nonlinearities must be considered when estimating and predicting unit costs.
The term experience curve describes a broader application of the learning curve—one that extends to other business functions in the value chain, such as marketing, distribution, and customer
service. An experience curve measures the decline in the cost per unit of these various business functions as the amount of these activities increases. For companies such as Dell Computer, Walmart, and McDonald’s, learning curves and experience curves are key elements of their strategies to reduce costs and increase customer satisfaction, market share, and profitability.
We now describe two learning-curve models: the cumulative average-time learning model and the incremental unit-time learning model.

Calculate the total variable costs of producing 2, 4, and 8 units.

Transcribed Image Text:

Direct materials cost Direct manufacturing labor time for first unit Learning curve for manufacturing labor time per radar system Direct manufacturing labor costs Variable manufacturing overhead costs $82,000 per unit of RS-32 3,600 direct manufacturing labor-hours 85% cumulative average time $ $ 20 per direct manufacturing labor-hour 17 per direct manufacturing labor-hour