Problem III (15 points) Learning Curve

Highestec, Inc., is beginning the production of a new product. Management believes that 500 labor hours will be required to complete the new unit. A 90 percent cumulative average-time learning curve model for direct labor hours is assumed to be valid. Data on costs are as follows:

Direct materials $50,000 per unit

Direct labor $20 per direct labor hour

Variable manufacturing overhead $30 per direct labor hour

Required: Using excel-

a. Set up a table with columns for cumulative number of units, cumulative average time per unit in hours using the cumulative average-time learning curve, cumulative total time in hours, and cumulative total cost. Complete the table for 1, 2, 4, and 8 units. (10 points)

b. Which model is better for a company: a 90 percent cumulative average-time learning curve or an 80 percent cumulative average-time learning curve? Explain (2 points)

c. Using the 90 percent cumulative average-time learning curve model for direct labor hours, how many hours will it take to produce the 9^th unit? (3 points). Note: the natural log of 80% is -0.2231. The natural log of 90% is -0.1054. The natural log of 2 is 0.6931.