Acct306 Homework Ch10 - CHAPTER 10 DETERMINING HOW COSTS...

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10-1 CHAPTER 10 DETERMINING HOW COSTS BEHAVE 10-37 Cost estimation, incremental unit-time learning model. 1. Cost to produce the 2nd through the 7th boats: Direct materials, 6 × $200,000 $1,200,000 Direct manufacturing labor (DML), 72,671 1 × $40 2,906,840 Variable manufacturing overhead, 72,671 × $25 1,816,775 Other manufacturing overhead, 20% of DML costs 581,368 Total costs $6,504,983 1 The direct labor hours to produce the second through the seventh boats can be calculated via a table format, given the assumption of an incremental unit-time learning curve of 90%: 90% Learning Curve Cumulative Number of Units ( X ) Individual Unit Time for X th Unit ( y ) * : Labor Hours Cumulative Total Time: Labor-Hours (1) (2) (3) 1 15,000 15,000 2 13,500 = (15,000 × 0.90) 28,500 3 12,693 41,193 4 12,150 = (13,500 × 0.90) 53,343 5 11,745 65,088 6 11,424 76,512 7 11,159 87,671 *Calculated as y = aX b where a = 15,000, b = – 0.152004, and X = 1, 2, 3,. . .7. The direct manufacturing labor-hours to produce the second through the seventh boat is 87,671 – 15,000 = 72,671 hours. 2. Difference in total costs to manufacture the second through the seventh boat under the incremental unit-time learning model and the cumulative average-time learning model is $6,504,983 (calculated in requirement 1 of this problem) – $5,807,249 (from requirement 1 of Problem 10-36) = $697,734, i.e., the total costs are higher for the incremental unit-time model. The incremental unit-time learning curve has a slower rate of decline in the time required to produce successive units than does the cumulative average-time learning curve (see Problem 10-36, requirement 1). Assuming the same 90% factor is used for both curves: Estimated Cumulative Direct Manufacturing Labor-Hours Cumulative Number of Units Cumulative Average- Time Learning Model Incremental Unit-Time Learning Model 1 2 4 7 15,000 27,000 48,600 78,113 15,000 28,500 53,343 87,671

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