AP Kathy’s homemade red velvet cake is the talk of the town! Her friends asked Kathy if she would make two of her special cakes for a donation item to support the local elementary school. Of course, she was willing to help out. Her friends were trying to figure out how long this homemade masterpiece was going to take each of them to make, though. Kathy had her prep time whittled down to almost nothing, but she recalled that it did take her quite a bit longer her first go-around. The following details outline Kathy’s estimate for her first cake.

Direct materials $6 per cake

Direct labor $10 per hour

Prep time 60 minutes

Cooking time 40 minutes

MOH 25% of total DL cost

Required

1) Calculate how much it would have cost Kathy to make her first cake if her time was worth $10/hour.

2) Assuming Kathy uses an 70% learning curve to account for the prep time, calculate how much it would have cost her to make the second cake.

3) If it took Kathy 46.37 minutes to prep her third cake, calculate the total cost for her to make her first four cakes. Calculate her average cost per cake for these four cakes.

4) How much time did Kathy save from prepping her first cake to prepping her fourth cake? If she continued her work and made additional cakes, do you think her 85% learning curve would be sustainable over a large quantity of cakes? Explain.