Doris Pte Ltd has developed a new appliance to be used in their shopping centres. One Iowa shopping centre is interested in purchasing 30 appliances for their own use and they want the appliance to be ready and available in one months' time. The appliance is predominantly made of wood, which requires carving, but includes some detailed specifications which would need to be glued on to the body made out of wood.

The following estimates have been prepared for the production of the appliance:

Wood cost per appliance - $50.00
Detailed mechanism per appliance - $120.00
Standard wage rate per hour $12.50
Standard variable overhead per hour $4.50

The first appliance, used as a testing model, took a total of 120 hours to produce. This testing model will remain in the in-house office and is known as the Zoey.

Doris Pte Ltd has recently produced similar appliance, the Dee, which is similar to the new appliance and experienced an 85% learning curve. The manager is sure that production of the new appliance will be following a similar curve.

Because it is a several number of months since the testing model was made, the manager of Doris Pte Ltd consider that any learning that was gained in making the new appliance will have been lost and thus there will be a restart to the learning. They thus assume that the first new appliance to be made will take the 120 hours that it took to make the testing model.

Fixed costs for the month are estimated at $6,500.

Doris Pte Ltd currently has a pricing policy based on 20% margin.

a. What is the price per new appliance and the total price for the 30 new appliances?

The Iowa shopping centre has mentioned that they are impressed with the new appliance and wants to use them again in the following year. They want to purchase an additional 170 new appliances, 20 to use in their mall and 150 to sell. The estimated fixed costs for the production of these 170 new appliances is $18,000. Since the learning curve for the Dee ceased at 100 units the manager at Doris Pte Ltd believe it is safe to assume that the learning curve for the new appliance will also cease at 100 units, with the 100th unit representing the standard cost.

b. For the additional 170 new appliances, calculate the price per new appliance and the total price for the 170 new appliances

c. What is the total cost for the 200 new appliances and the cost per new appliance had the initial order been for all 200 new appliances

Answer rating: 100% (QA)

Explanations of the Above Problems Question 1 The labor cost per appliance is calcula... View the full answer