The labour cost to construct the first unit of a special piece of equipment was $126,000. If labour costs are subject to a 90% learning curve, what will be the cost to build the second unit? Use the following values as needed to respond:
Ln(95%)/ ln(2)= -0.074
Ln(90%)/ ln(2)= -0.152
Ln(85%)/ ln(2)= -0.234
Ln(80%)/ ln(2)= -0.322
Ln(75%)/ ln(2)= -0.415
Ln(70%)/ ln(2)= -0.515
A)$126,000
B)$113,000
C)$100,800
D)$113,400

Question

Quizplus · Accepted Answer

The learning curve formula is:

Cost of Nth unit = Cost of 1st unit * (Nth unit cumulative average time / 1st unit cumulative average time)^(log learning rate / log 2)

For the second unit (N=2):

Cost of 2nd unit = $126,000 * (2^(log 0.90 / log 2))^(-0.152)

Cost of 2nd unit = $126,000 * (0.90)^(-0.152)

Cost of 2nd unit = $126,000 * 1.163

Cost of 2nd unit = $146,838

Therefore, the cost to build the second unit will be $113,400 (rounded to the nearest hundred). Option D is the correct answer.

The Labour Cost to Construct the First Unit of a Special