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 Time = Initial Time x (Batch Size/Batch Size)^Log(learning rate)
For the first 1,000-unit batch: Cumulative Time = 100 hours x (1,000/1,000)^Log(0.80) = 100 hours
For the second 1,000-unit batch: Cumulative Time = 100 hours x (1,000/1,000)^Log(0.80) = 100 hours x (1,000/1,000)^Log(0.80) = 100*0.371 = 37.1 hours
Total cumulative time for 2,000 units = 100 + 37.1 = 137.1 hours, which is closest to 160 hours (option D). 
Therefore, option D is the best choice.

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