Suntharam Corp. plans to manufacture a new product that is subject to labor costs. The new product will have a materials cost of $250 per unit. The standard direct labor rate is $15 per direct labor-hour. Variable overhead is applied at a rate of $10 per direct labor hour. The first unit required a total of 200 hours.
The second unit required a total of 140 hours. This implies an 85% cumulative learning curve. From experience, the production manager believes that improvements in production time will be limited to the first 32 units. A standard for production time will be determined based on the average hours per unit for units 17 - 32.
Required:
1) Calculate the standard for direct labor-hours that Suntharam should establish for each unit of new product.
2) After 32 units have been produced, Suntharam has to submit a bid on an additional 100 units. A competitor has submitted a bid of $2,500 per unit. Would Suntharam be likely to win the contract (i.e., come in with a lower bid)?

Question

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The Answer of Suntharam Corp. plans to manufacture a new product that is subject to labor costs. The new product will have a materials cost of $250 per unit. The standard direct labor rate is $15 per direct labor-hour. Variable overhead is applied at a rate of $10 per direct labor hour. The first unit required a total of 200 hours.
The second unit required a total of 140 hours. This implies an 85% cumulative learning curve. From experience, the production manager believes that improvements in production time will be limited to the first 32 units. A standard for production time will be determined based on the average hours per unit for units 17 - 32.
Required:
1) Calculate the standard for direct labor-hours that Suntharam should establish for each unit of new product.
2) After 32 units have been produced, Suntharam has to submit a bid on an additional 100 units. A competitor has submitted a bid of $2,500 per unit. Would Suntharam be likely to win the contract (i.e., come in with a lower bid)?