Hereford 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. What is the batch unit time (labor hours) to produce 2,000 units based on the cumulative average time learning curve?
A)20 hours
B)60 hours
C)100 hours
D)80 hours

Question

Quizplus · Accepted Answer

The cumulative average time learning curve formula is:

Cumulative average time = (time for first unit)(number of units)^(log learning rate/log2)

Substituting the given values, we get:

Cumulative average time = (100)(1000)^(log 0.8/log2) = 100(10)^(−0.3219) = 60.34 hours

This means it takes 60.34 hours to produce 1,000 units. 
Using the same formula, for 2,000 units:

Cumulative average time = (100)(2000)^(log 0.8/log 2) = 100(10^−0.3219) = 80.5 hours

Therefore, the batch unit time to produce 2,000 units is 80.5 hours. Hence, the best choice is B.

Hereford Company Is Planning to Introduce a New Product with an 80