SVC is a car manufacturer. SVC is planning the development of a prototype hydrogen-powered car, the Model Q. The prototype Model Q car will have a limited production run of 250 cars. To ensure that the Model Q is ready by SVC’s stated deadline, production will take place over the course of one month. Details for the development and production of the prototype Model Q are shown below. 

Forecast development cost ........................................................€6500,000 

Forecast design cost .................................................................... €1300,000 

Forecast manufacturing costs 

Material cost ................................................................................. €25,500 per car 

Variable production overhead cost ............................................€780 per car (this is not related to labour-hours) 

Direct labour ................................................................................. €60 per hour (see note 2 below) 

Direct labour 

SVC plans to hire a team of 12 specialist production staff. The specialist production staff will be paid a premium on their basic hourly rate of pay dependent on the total number of labour-hours required to produce all 250 prototype Model Q cars as follows: 

The premium on the basic hourly labour rate will be applicable to all labour-hours during production 

Learning curve 

It is estimated that the manufacture of the first car will take 13 labour-hours. There is expected to be a 95% learning curve that will continue until 128 cars have been produced. Thereafter, each car will take the same time to produce as the 128th. 

Notes

1. The learning index for a 95% learning curve = -0.074. 

2. The hourly direct labour rate stated above under ‘Forecast manufacturing cost’ is inclusive of a premium on the basic hourly labour rate, which has been calculated assuming that each of the 250 cars takes the same time to produce as the first. 

Required 

Calculate the total labour cost of producing 250 cars.

Transcribed Image Text:

Premium on basic Total labour-hours hourly labour rate 0-2000 35% 2001-2500 30% 25% 20% 2501-3000 3001-3500 More than 3500 0%