Green Company is planning to introduce a new product with a 75 percent incremental unit-time learning curve for production in batches of 1,500 units. The variable labor costs are $55 per unit for the first 1,500-unit batch. Each batch requires 200 hours. There are $15,000 in fixed costs not subject to learning. What is the cumulative total time (labor hours) to produce 3,000 units?
A)350 hours
B)250 hours
C)300 hours
D)255 hours

Question

Quizplus · Accepted Answer

The cumulative total time to produce 3,000 units is 350 hours. This is because the incremental unit-time learning curve is 75 percent, which means that the time required to produce each additional unit decreases by 25 percent. The first 1,500 units will require 200 hours each, for a total of 300,000 hours. The next 1,500 units will require 150 hours each, for a total of 225,000 hours. The total time to produce 3,000 units is therefore 300,000 + 225,000 = 525,000 hours. Dividing this by the number of units produced (3,000) gives a cumulative total time of 350 hours per unit.

Green Company Is Planning to Introduce a New Product with a 75