Learning Curve and Cost Estimation The Smyth Company, a subcontractor for the aircraft and missile industry, has been asked to bid on a prospective contract for 900 units of a precision missile part. Two months ago, the Smyth Company had produced 300 of these parts at the following total costs:

) Direct materials $12,000 =» Y?

A ph" ’*'" Direct labor (6,000 hours @ $4.00) 24,000 :200 §2 ob: Tooling cost? 3,000 +397 }0 Variable overhead? 3,000 * 3 \)

Other overhead® 6,000 - D 40 Total costs $48,000

* Tooling can be reused, even though all of its ‘cost was assigned to the original order of 300 parts.

» Variable-overhead incurrence is directly affected by direct-labor hours.

* Other overhead is assigned at a flat rate of 25 percent of direct-labor cost for purposes of bidding on contracts.

The Smyth Company has used an 80 percent learning curve as a basis for forecasting what pertinent costs should be.

Prepare a prediction of the total expected costs for bidding on a contract of 900 units.