(2) The Pacific Boat 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 Pacific Boat submit a proposal on the cost of producing another six PT109s. Pacific Boat 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 labour-hours for the next six PT109s. (A 90% learning curve means b =0.152004.)

Direct material cost	$199,000
Direct manufacturing labour time for first boat	14,700	labour-hours
Direct manufacturing labour rate	$42	per direct manufacturing labour-hour
Variable manufacturing overhead cost	$26	per direct manufacturing labour-hour
Other manufacturing overhead	20%	of direct manufacturing labour costs
Tooling costsa	$279,000
Learning curve for manufacturing labour time per boat	90%	cumulative average timeb

a	Tooling can be reused at no extra cost because all of its cost has been assigned to the first deployment boat.
b	Using the formula for a 90% learning curve, b =

Required

1.	Calculate predicted total costs of producing the six PT109s for the Navy. (Pacific Boat will keep the first deployment boat assembled, costed at $1,477,600, 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 labour? That is, for (b) assume a linear function for units produced and direct manufacturing labour-hours.

In 0.90 In 2 - 0.105361 0.693147 -0.152004