Nautilus should examine itsown internal records

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Unformatted text preview: ts is 49,130 – 10,000 = 39,130 hours. b Use of for mula: y = aX wher e a = 10,000, X = 8, and b = – 0.234465 – y = 10,000 ´ 8 0.234465 = 6,141.25 hours The total dir ect labor­hours for 8 units is 6,141.25 ´ 8 = 49,130 hours The direct labor­hours required to produce the second thr ough the eighth boats is 49,130 – 10,000 = 39,130 hours. Note: Some students will debate the exclusio n of the tooling cost. The quest ion specifies that the tooling “cost was assigned to the first boat.” Although Nautilus may well seek to ensure its total revenue covers the $725,000 cost of the first boat, the concern in this quest ion is only with the cost of producing seven more PT109s. 10­27 2. Cost to produce the 2nd through the 8th boats assuming linear function for direct labor­ hours and units produced: Direct materials, 7 ´ $100,000 $ 700,000 Direct manufacturing labor (DML), 7 ´ 10,000 hrs. ´ $30 2,100,000 Variable manufacturing overhead, 7 ´ 10,000 hrs. ´ $20 1,400,000 Other manufacturing overhead, 25% of DML costs 525,000 Total costs $4,725,000 The difference in predicted costs is: Predicted cost in requirement 2 (based on linear cost function) Predicted cost in requirement 1 (based on 85% learning curve) Difference in favor of learning­curve based costs $4,725,000 2,949,975 $1,775,025 Note that the linear cost funct ion assumpt ion leads to a total cost that is 60% higher than the cost predicted by the learning curve model. Learning curve effects are most prevalent in large manufacturing industries such as airplanes and boats where costs can run into the millio ns or hundreds o f millio ns o f do llars, result ing in very large and mo netarily significant differences between the two models. 10­28 10­37 (20–30 min.) Cost estimation, incremental unit­time learning model. 1. Cost to produce the 2nd through the 8th boats: Direct materials, 7 ´ $100,000 1 Direct manufacturing labor (DML), 49,358 ´ $30 Variable manufacturing overhead, 49,358 ´ $20 Other manufacturing overhead, 25% of DML costs Total costs $ 700,000 1,480,740 9...
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This note was uploaded on 10/11/2010 for the course ACCT 321 taught by Professor Cole during the Spring '10 term at University of Miami.

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