Ellington recently developed a new braking system for the CrossCountry Model$-500$ dirt bike. Because of the company$$s current availability of production capacity, Jim Walsh, production manager, recommended that the first lot of the new braking system be manufactured in$-$house rather than by subcontractors. This $150-$unit production run has now been completed. The cumulative average labor hours per unit for the braking system was $150$ hours. Ellington$$s experience with similar products indicates that a learning curve of $80\%$ is applicable and that the learning factor can be expected to extend only through the fourth production run $(150$ per batch$)$ for a total of $600$ units.

Ellington$$s direct labor cost is $$26$ per direct labor hour. Its management must decide whether to continue producing the braking system in its own plant or to subcontract this work. Joyce Lane, Ellington$$s purchasing agent, has received a proposal from MACQ, a company specializing in component assembly. MACQ has done work in the past for Ellington and has proved to be a high$-$quality and reliable vendor. The terms of MACQ$$s proposal are negotiable, and before beginning discussions with them, Joyce has decided to conduct some relevant financial analysis.

Problem $8-53($Algo$)$ Part $1$ Ellington Company has an immediate requirement for a total of $1,000$ units

Required:

Ellington Company has an immediate requirement for a total of $1,000$ units of the braking system. Determine the company$$s future direct labor costs to produce the required braking system units if it manufactures the units in$-$house.

A consultant has advised Joyce that the learning rate for this application might be closer to $75\%.$ What is the effect on projected costs of using a $75\%$ learning rate as opposed to an $80\%$ learning rate?