Problem $8-53($Algo$)$ Part $1$ Ellington Company

has an immediate requirement for a total of

$1,000$ units

Required:

I. Ellington Company has an immediate

requirement for a total of $1,000$ units of the

braking system. Determine the company's future

direct labor costs to produce the required

braking system units if it manufactures the units

in$-$house.

I. A consultant has advised Joyce that the learning

rate for this application might be closer to $75\%.$

What is the effect on projected costs of using a

$75\%$ learning rate as opposed to an $80\%$ learning

rate?

Note: Do not round intermediate calculations.Problem $8-53($Algo$)$ Learning Curves $[$LO $8-1,$

$8-5]$

$[$The following information applies to the questions

displayed below.$]$

Ellington Company manufactures a line of

motorbikes and dirt bikes under the trade name

CrossCountry. The company has been in business

for almost $20$ years and has maintained a

profitable share of the recreational vehicle market

due to its reputation for high$-$quality products. In

addition, Ellington's engineering department has

kept the company in the forefront by incorporating

the latest technology in the CrossCountry bikes.

Most subassembly work for the bikes is

subcontracted to reliable vendors. However, the

final assembly and inspection of all products is

performed at Ellington's plant.

Ellington recently developed a new braking

system for the CrossCountry Model$-500$ dirt bike.

Because of the company's current availability of

production capacity, Jim Walsh, production

manager, recommended that the first lot of the

new braking system be manufactured in$-$house

rather than by subcontractors. This $150-$unit

production run has now been completed. The

cumulative average labor hours per unit for the

braking system was $150$ hours. Ellington's

experience with similar products indicates that a

learning curve of $80\%$ is applicable and that the

learning factor can be expected to extend only

through the fourth production run $(150$ per batch$)$

for a total of $600$ units.

Ellington's direct labor cost is $$26$ per direct labor

hour. Its management must decide whether to

continue producing the braking system in its own

plant or to subcontract this work. Joyce Lane,

Ellington's purchasing agent, has received a

proposal from MACQ, a company specializing in

component assembly. MACQ has done work in the

past for Ellington and has proved to be a high$-$

quality and reliable vendor. The terms of MACQ's

proposal are negotiable, and before beginning

discussions with them, Joyce has decided to

conduct some relevant financial analysis.