Example 1 BG.

BG has recently developed a new product. The nature of their work is repetitive and it is usual for them to have 80% learning curve effect when a new product is developed. Time taken for the first unit was 22 minutes. Assuming that an 80% learning effect applies.

Required:

1. Calculate average time per unit when four unit were produced
2. Calculate the total time for the four units
3. Calculate time for the 4^th unit

Example 2

Limitation plc commenced the manufacturing and sale of a new product in the fourth quarter of 2012 in order to facilitate the budgeting process for quarter 1 and 2 of 2013, the following information has been collected.

1. Forecast production/ sales (batch of product) is as follows:

Quarter 4, 2012 30 batches

Quarter 1, 2013 45 batches

Quarter 2, 2013 45 batches

2. It is estimated that direct labour is subject to a learning curve effect of 90%. The labour cost of batch 1 of quarter 4, 2012 was $600 (at $5 per hour). The labour output rate from the commencement of production of the product after adjusting for learning effects are as follows:

Total batches produced overall average time per batch

15 79.51

30 71.56

45 67.28

60 64.40

75 62.25

90 60.55

105 59.15

120 57.96

All time will be paid for at $5 per hour.

3. Variable overhead is estimated at 150% of direct labour cost during 2013
4. All units produced will be sold in quarter of production at $1200 per batch

Required:

1. Calculate the labour hours requirement for the second batch.
2. Prepare a budget for each of quarter 1 and 2, 2013 showing the contribution earned from the product. Show all relevant workings
3. Limitation plc wishes to prepare quotation for 12 batches of the product to be produced at the start of quarter 3, 2013.