Use the following to answer questions:
YinLee Corp. is looking to introduce a new product with an 80% cumulative learning curve for production batches of 500 units. The variable production and selling costs, all subject to learning, are $20 per unit for the first 1,000-unit batch. There are $15,000 in fixed costs not subject to learning.
-If the YinLee Company can sell all it produces for $20 per unit, what is the profit or loss at a production and sales level of 4,000 units?
A) No profit or loss
B) $13,800 profit
C) $24,040 profit
D) $10,350 loss

Question

Quizplus · Accepted Answer

The cumulative average time per unit or cost per unit will decrease by a constant percentage each time the cumulative quantity of units produced doubles. With an 80% learning curve, the cost per unit for subsequent batches will be 80% of the cost of the previous batch. For 4,000 units (or four batches of 1,000 units each), the costs are calculated as follows:1. First batch of 1,000 units: $20/unit, total = $20,0002. Second batch of 1,000 units: $20/unit * 80% = $16/unit, total = $16,0003. Third batch of 1,000 units: $16/unit * 80% = $12.80/unit, total = $12,8004. Fourth batch of 1,000 units: $12.80/unit * 80% = $10.24/unit, total = $10,240Total variable costs = $20,000 + $16,000 + $12,800 + $10,240 = $59,040Fixed costs = $15,000Total costs = $59,040 (variable) + $15,000 (fixed) = $74,040Revenue = 4,000 units * $20/unit = $80,000Profit = Revenue - Total costs = $80,000 - $74,040 = $5,960However, none of the options match the calculated profit. Given the options provided and the methodology typically expected in such questions, it seems there might have been a misunderstanding in the calculation or the interpretation of the options. The correct approach involves applying the learning curve to calculate the costs accurately and then determining profit by subtracting total costs from total revenue. If there's an error in the calculation or an assumption not accounted for in the provided options, it would be essential to review the learning curve application or the cost calculations.

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