The Blue Seas Company, which is under contract to the Navy, assembles troop deployment boats. As part of its research program, it completes the assembly of the first of a new model (PT109) of deployment boats. The Navy is impressed with the PT109. It requests that Blue Seas submit a proposal on the cost of producing another six PT109s. Blue Seas reports the following cost information for the first PT109 assembled and uses a 90% cumulative average time learning model as a basis for forecasting direct manufacturing labor-hours for the next six PT109s. (A 90% learning curve means b = -0.152004.)

Required

1. Calculate predicted total costs of producing the six PT109s for the Navy. (Blue Seas will keep the first  deployment boat assembled, cost at $1,533,900, as a demonstration model for potential customers.)
2. What is the dollar amount of the difference between 

(a) The predicted total costs for producing the six PT109s in requirement 1 and 

(b) The predicted total costs for producing the six PT109s, assuming that  there is no learning curve for direct manufacturing labor? That is, for 

(b) Assume a linear function for units produced and direct manufacturing labor-hours.

Transcribed Image Text:

Home Insert Page Layout A 1 Direct material 2 Direct manufacturing labor time for first boat 3 Direct manufacturing labor rate 4 Variable manufacturing overhead cost 5 Other manufacturing overhead 6 Tooling costs Formulas Data Review B $ 201,000 In 0.90 In 2 $ $ 15,700 labor-hours View $281,000 43 per direct manufacturing labor-hour 24 per direct manufacturing labor-hour 15% of direct manufacturing labor costs -0.105361 0.693147 7 Learning curve for manufacturing lobor time per boat 8 9 "Tooling can be reused at no extra cost because all of its cost has been assigned to the first deployment boat. 10 11 Using the formula (page 411) for a 90% leaming curve, b 90% cumulative average -0.152004 time