Shaw Company is developing a new product, TDY-8, to replace an existing product. As the cost analyst,

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Shaw Company is developing a new product, TDY-8, to replace an existing product. As the cost
analyst, you have been asked by the vice president of operations to prepare an analysis estimating the
total variable cost per unit of producing TDY-8.
The total variable cost per unit of TDY-8 will include the cost per unit of direct materials, direct labor,
and variable overhead, and should be summarized in your spreadsheet as follows:
Direct materials $xx
Direct labor xx
Variable overhead xx
Total variable cost per unit $xx
The following costs and hours were incurred to produce the first unit of TDY-8:
Direct materials $325.00
Machine hours 31 machine hours
Direct labor wage rate $ 14.00 per hour
The cost of materials, number of machine hours, and labor wage rate are expected to remain the same
for each subsequent unit produced. The direct labor hours are expected to follow a cumulative
average-time learning curve with the following information:
Direct labor hours for first unit 70 labor hours
Learning curve percentage 84%
Learning curve factor b -0.2515388
The variable overhead cost per unit is estimated using regression analysis to find the cost driver you
determine to be most appropriate (labor hours or machine hours) and the related ‘b’ coefficient (slope
or variable cost per unit) from the cost function as described in requirement b.
REQUIRED: Follow the instructions below to (a) estimate the direct labor hours using a cumulative
average time learning curve; (b) use regression to choose the better cost driver (number of returns or
preparation hours) and determine a cost function for overhead costs; and (c) prepare a summary as
shown below.
a. Estimate the direct labor hours per unit: Prepare a cumulative average time learning curve
schedule through 16 units. Direct labor hours per unit are expected to level off at 16 returns, so the estimated hours for each unit is the “Individual unit
time for the 16th unit”