Jammin’ Corporation plans to manufacture Inexcess, a product that requires a substantial amount of direct labor on each unit. Based on the company’s experience with other products that required similar amounts of direct labor, management believes that a learning factor exists in the production process used to manufacture Inexcess.

Each unit of Inexcess requires 50 square feet of direct material at a cost of $30 per square foot, for a total material cost of $1,500. The standard direct-labor rate is $25 per direct-labor hour. Variable manufacturing overhead is assigned to products at a rate of $40 per direct-labor hour. In determining an initial bid price for all products, the company marks up variable manufacturing costs (= direct materials

+ direct labor + variable overhead) 30 percent. (That is, the bid = 130 percent of variable manufacturing costs.)

Data on the production of the first two lots (16 units) of Inexcess follow:

1. The first lot of eight units required a total of 3,200 direct-labor hours.

2. The second lot of eight units required a total of 2,240 direct-labor hours.

Based on prior production experience, Jammin’ estimates that production time will show no significant improvement after the first 32 units. Therefore, a standard (for planning purposes) for direct-labor hours will be established based on the average number of hours per unit for units 17 through 32.

Required

a. What is the basic premise of the learning curve?

b. Based on the data presented for the first 16 units, what learning rate appears to be applicable to the direct labor required to produce Inexcess? Support your answer with appropriate calculations.

c. Calculate the standard for direct-labor hours that Jammin’ should establish for each unit of Inexcess.

d. After the first 32 units have been manufactured, Jammin’ was asked to submit a bid on an additional 96 units. What price should Jammin’ bid on this order of 96 units? Explain your answer.

e. Knowledge of the learning curve can be a valuable management tool. Explain how management can apply this tool in planning and controlling business operations