1. DEL Co has developed a new type of luxury car seat. The estimated labour time for the first unit is 12 hours but a learning curve of 75% is expected to apply for the first eight units produced. The cost of labour is Ksh.15 per hour. The cost of materials and other variable overheads is expected to total Ksh.230 per unit. DEL Co plans on pricing the seat by adding a 50% mark-up to the total variable cost per seat, with the labour cost being based on the incremental time taken to produce the 8th unit.

Required: (a) Calculate the price which DEL Co expects to charge for the new seat.

Note: The learning index for a 75% learning curve is 0415.

b) The first phase of production has now been completed for the new car seat. The first unit actually took 125 hours to make and the total time for the first eight units was 343 hours, at which point the learning effect came to an end. DEL Co are planning on adjusting the price to reflect the actual time it took to complete the 8th unit.

Required:

1. Calculate the actual rate of learning and state whether this means that the labour force

actually learnt more quickly or less quickly than expected.

Briefly explain whether the adjusted price charged by DEL Co will be higher or lower than the price you calculated in part (a) above. You are NOT required to calculate the adjusted price.