Question 3(25 Marks)

Part A (12 Marks)

Reusable Inc uses the sun to provide charging facilities for the rapidly growing electric vehicle market. The traditional methods of charging these vehicles takes too long so a product was designed for a fast charging system which reduces charging time by 50%. It has just completed the prototype for a new model. The information for the Charging system is shown below.

Direct material cost per unit $25,000

Direct labour time for the assembly of first unit in hours 120

Direct labour cost per hour $ 80

Learning effect for design hours per unit 90%

Variable manufacturing overhead 50% of direct labour cost

Fixed overhead cost per system $500

(A 90% learning curve implies that b = -0.1520)

The first unit is kept on display. A finished system carries a 10% mark up on variable cost. It is believed that the learning effect is valid only for the first 12 units. All units thereafter take the same time per unit as the 12^th unit.

Required

1. Determine the cumulative average design labour hours for an initial order of 10 units. (3 marks)

2. A car dealership in a neighboring Island is interested in installing 10 systems in their location. This would be in addition to the initial order of 10. Prepare a quotation for this dealership considering additional incidental cost of 10% of variable production cost. (9 Marks)