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Rincavage Corporation has developed a new product, cleverly named Product X, the manufacture of which requires an extremely high degree of technical skill. Management believes
Rincavage Corporation has developed a new product, cleverly named Product X, the manufacture of which requires an extremely high degree of technical skill. Management believes that there is an excellent opportunity for its technical force to learn and improve as they become accustomed to the production process. The production of the first unit required 10,000 direct labor hours. Rincavage management projects an 80% learning curve with respect to the production of Product X. Additional cost information relating to this product is as follows: REQUIRED: Assume for questions 1, 2 & 3, that Rincavage anticipates producing a total of 8 units of Product X 1) Upon completion of the eighth unit, Rincavages cumulative average direct labor hours required per unit of the product will be how much? 2) Upon completion of the eighth unit, Rincavages cumulative (total) direct labor hours will be 3) After completing the first unit, the estimated total direct labor hours Rincavage will require to produce seven additional units will be? 4) NOW ASSUME that Rincavage has already produced one unit. The company seeks to bid on a government contract calling for the production of an additional 3 units. How many additional labor hours will be needed for this government contract? 5) NOW ASSUME for the remainder of this problem that these three units will require 15,000 direct labor hours. Rincavage has ample capacity to produce the additional 3 units without disrupting other operations. Rincavage prices these parts on a cost-plus basis using full manufacturing cost as the basis for their bid. How much should the company bid on this project? 6) Assume again that Rincavage has already produced 1 unit, and has now received a one-time special order from a foreign customer for 3 units, at a total price of $725,000. Again assume that Rincavage has ample capacity to produce the required units without affecting normal operations and that these three units will require 15,000 direct labor hours as noted in #5 above. Should Rincavage accept or reject this order? Why or not? How much better or worse off would they be if the accepted this order? What is the minimum price that Rincavage must charge for this order, in total and per-unit, without negatively affecting their profit
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