Boat Company, which is under contract to the U.S. 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 labor-hours for the next six PT109s. (A 90 % learning curve means b = negative 0.152004 .)

Direct material

$ 197 000

Direct manufacturing labor time for first boat	14 900

	labor-hours
Direct manufacturing labor rate	$42

	per direct manufacturing labor-hour
Variable manufacturing overhead cost	$22

	per direct manufacturing labor-hour
Other manufacturing overhead	25

%	of direct manufacturing labor costs
Tooling

$ 277,000

Learning curve for manufacturing labor time per boat	90

%	cumulative average b

Tooling can be reused at no extra cost because all of its cost has been assigned to the first deployment boat.

Using the formula for a

90

%

learning curve, b = ln 0.90/ ln 2 = negative 0.105361 / 0.693147 = negative 0.152004