Figure 3-9 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.
Refer to Figure 3-9. What is the cumulative total time (labor hours) to produce 2,000 units based on the cumulative average-time learning curve?

Question

Quizplus · Accepted Answer

Using the cumulative average-time learning curve formula:

Cumulative Total Time = Batch Hours x Number of Batches x (1 - Learning Rate)^n / (1 - Learning Rate)

For the first 1,000-unit batch: 
Cumulative Total Time = 100 x 1 x (1 - 0.80)^0 / (1 - 0.80) = 100 hours

For the second 1,000-unit batch: 
Cumulative Total Time = 100 x 1 x (1 - 0.80)^1 / (1 - 0.80) = 200 hours

Therefore, the total cumulative time to produce 2,000 units is 100 + 200 = 300 hours, which corresponds to choice D.

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