Specialist Designs Ltd has received an order from Elite Machines to produce 8.000 units of Xlesia, a newly designed component, to be delivered in eight weekly batches of 1,000 units for 8 weeks. Each batch involves direct labour working on machines for 80% of the time and 20% of the time without machines. The estimates for each batch are: Materials Metal - 300 metres @ 5 per metre Small components 1000 packs @ 0.5 per pack Direct labour 60 hours @ 22 per hour Machine variable overhead @ 1.50 per direct machine hour Labour variable overhead @2.50 per direct labour hour The agreed price per batch is 5.000, which is lower than Specialist Designs Ltd normal requirement, as their normal mark-up is 100% on variable costs. However competitive pressures mean that a higher price would lose them the work. They also expect that repeat orders will be made. The purchasing and production departments have been asked to look at the possibility of reducing costs. Required a) Calculate the variable costs for one batch and the normal price that would be charged. (2 marks) b) Assuming that: (6) The metal price could be reduced by 10% for all orders after the first 600 metres have been bought (ii) No discount is possible for the small components. (iii) A 75% learning curve will be experienced up to batch eight, after which no additional efficiency will be experienced. Calculate the total cost of the first 8 batches and comment on the profitability of the total order. (10 marks) c) Using the learning curve formula the following information has been obtained: The average hours per batch of cumulative production for 7 batches is 26.757 hours. If the price is maintained at 5,000 per batch, calculate the contribution which will be made on each additional batch, (4 marks) d) Explain the importance of knowing the learning curve effect for decision making and control purposes. (4 marks)