Innova,Inc.,is beginning the production of a new product.Management believes that 500 labour hours will be required to complete the new unit.A 90 percent cumulative average-time learning curve model for direct labour hours is assumed to be valid.Data on costs are as follows:
a.Set up a table with columns for cumulative number of units,cumulative average time per unit in hours,and cumulative total time in hours using the cumulative average-time learning curve.Complete the table for 1,2,4,and 8 units.
b.Set up a similar table assuming an 80 percent cumulative average-time learning curve.
c.What is the difference in variable cost of producing four units?
Correct Answer:
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c.0.90 model = $200,000 + ...
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