Question 4 (Learning Curves) The Betta Kitchen Company (BKC) has been asked to bid for a contract to fit 600 identical kitchens into a number of new apartment blocks Because the kitchens to be fitted are different from anything that BKC has fitted before, they expect that a learning curve effect will take place The first kitchen is expected to take 24 labour hours to fit, and thereafter the time taken will be subject to a 95 learning rate After 200 kitchens have been fitted, the learning effect will stop The time taken for the 200 th kitchen will also be the time taken for the remaining kitchens It is company policy to charge the following costs to each contract Material costs Materials for the contract are expected to cost 850 per kitchen, less a 5 bulk buying discount Labour Labour costs for the contract will be 15 per hour Overheads Variable and fixed overheads are charged out per labour hour Fixed and variable overheads for the year must be calculated using the High Low method Total overheads for the past four years have been Labour Hours worked Overhead cost (s) Year 1 118,000 1,429,000 Year 2 125,000 1,480,000 Year 3 122,000 1,451,000 Year 4 115,000 1,400,000 The fixed overhead rate per labour hour to be charged to jobs should be calculated by taking the total fixed overhead figure calculated using the High Low method, and dividing it by the average number of labour hours worked per year, over the past four years The final price to be quoted for the contract will be determined by adding a percentage mark up to the total contract costs The learning factor for a 95 learning curve is 0 074 The learning curve formula is Y x ax b Where Y x average time per unit for x number of units a time taken for the first unit b the learning factor expressed as a decimal x cumulative output in units N B All learning curve calculations should be carried out to at least three decimal places Required 1 Apart from the labour cost per hour and the overhead costs per hour, name SIX other important factors that BKC should take into account when calculating the final price to be quoted for the contract

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Question 4 (Learning Curves) The Betta Kitchen Company (BKC) has been asked to bid for a contract to fit 600 identical kitchens into a number

Question 4 (Learning Curves)

The Betta Kitchen Company (BKC) has been asked to bid for a contract to fit 600 identical kitchens into a number of new apartment blocks. Because the kitchens to be fitted are different from anything that BKC has fitted before, they expect that a learning curve effect will take place.

The first kitchen is expected to take 24 labour hours to fit, and thereafter the time taken will be subject to a 95% learning rate. After 200 kitchens have been fitted, the learning effect will stop. The time taken for the 200^th kitchen will also be the time taken for the remaining kitchens.

It is company policy to charge the following costs to each contract:

Material costs. Materials for the contract are expected to cost 850 per kitchen, less a 5% bulk-buying discount.
Labour. Labour costs for the contract will be 15 per hour.
Overheads. Variable and fixed overheads are charged out per labour hour. Fixed and variable overheads for the year must be calculated using the High-Low method. Total overheads for the past four years have been:

Labour Hours worked Overhead cost (s)

Year 1 118,000 1,429,000

Year 2 125,000 1,480,000

Year 3 122,000 1,451,000

Year 4 115,000 1,400,000

The fixed overhead rate per labour hour to be charged to jobs should be calculated by taking the total fixed overhead figure calculated using the High-Low method, and dividing it by the average number of labour hours worked per year, over the past four years.

The final price to be quoted for the contract will be determined by adding a percentage mark-up to the total contract costs.

The learning factor for a 95% learning curve is -0.074

The learning curve formula is:

Y_x = ax^b

Where:

Y_x = average time per unit for x number of units

a = time taken for the first unit

b = the learning factor expressed as a decimal

x = cumulative output in units

N.B.: All learning curve calculations should be carried out to at least three decimal places

Required

1. Apart from the labour cost per hour and the overhead costs per hour, name SIX other important factors that BKC should take into account when calculating the final price to be quoted for the contract.