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A company has developed a new product. Details are as follows: Selling price and product life cycle The product will have a life cycle of
A company has developed a new product. Details are as follows: Selling price and product life cycle The product will have a life cycle of 10,000 units. It is estimated that the first 9,000 units will be sold for TZS124 each and then the product will enter the decline stage of its life cycle. It is difficult to forecast the selling price for the 1,000 units that will be sold during this stage. Costs Labour will be paid at TZS12 per hour. Other variable costs will be TZS38 per unit. Fixed costs will total TZS80,000 over the life cycle of the product. The labour rate and both of these costs will not change throughout the products life cycle. Learning curve The first batch of 100 units will take 1,500 labour hours to produce. There will be an 85% learning curve that will continue until 6,400 units have been produced. Batches after this level will each take the same amount of time as the 64th batch. The batch size will always be 100 units. Required: Calculate (a) the cumulative average time per batch for the first 64 batches (b) the time taken for the 64th batch (c) the average selling price of the final 1,000 units that will allow the company to earn a total profit of TZS100,000 from the product Note: The learning index for an 85% learning curve is -0.2345
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