The budget for the production cost of a new product was based on the following assumptions:

(i) Time for the 1^st batch of output = 10 hours

(ii) Learning rate = 80 per cent

(iii) Learning will cease alter 40 batches, and thereafter the time per batch will be the same as the time of the final batch during the learning period, i.e. the 40^th batch

(iv) Standard direct labour rate per hour = \($12.00\) An extract from the out-turn performance report based on the above budget is as follows:

Further analysis has shown that, due to similarities between this product and another that was developed last year, the rate of learning that should have been expected was 70 per cent and that the learning should have ceased after 30 batches. Other budget assumptions for the new product remain valid.

Required:

(a) Prepare a revised out-turn performance report for the new product that

(i) shows the flexed budgeted direct labour hours and direct labour cost based on the revised learning curve data, and

(ii) shows the variances that reconcile the actual results to your flexed budget in as much detail as possible.

(b) Explain why your report is more useful to the production manager than the report shown above.

The learning index values for an 80 per cent and a 70 per cent learning curve are –0.3219 and –0.5146 respectively.

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Budget Actual Output (batches) 60 50 Variance 10 adverse Direct labour hours 163.53 93.65 69.88 favourable Direct labour cost $1962 $1146 $816 favourable