Figure 3-9 Abboud Company is planning to introduce a new product with an 80 percent learning rate for production for batches of 1,000 units.The variable labor costs are $30 per unit for the first 1,000-unit batch.Each batch requires 100 hours.There are $10,000 in fixed costs not subject to learning.
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Refer to Figure 3-9.What is the cumulative average time per batch using the incremental unit-time learning curve for 2,000 units?
A) 180
B) 100
C) 90
D) 80

Question

Quizplus · Accepted Answer

The incremental unit-time learning curve formula is:
Cumulative average time per batch = Time for the first unit x (Number of units produced / Batch size)^log(base 2)learning rate

Time for the first unit is 100 hours.
For 2,000 units, there will be 2 batches of 1,000 units each.
So, the cumulative average time per batch for 1,000 units is:

Cumulative average time per batch = 100 x (1,000 / 1,000)^log(base 2)0.8
= 100 hours

Now, for the second batch of 1,000 units as per the learning rate:

Cumulative average time per batch = 100 x (1,000 / 1,000)^log(base 2)0.8
= 90 hours

Therefore, the cumulative average time per batch for 2,000 units is (100 + 90)/2 = 95 hours.

Hence, the best choice is C.

Figure 3-9 Abboud Company Is Planning to Introduce a New