The Blue Water Company (BW) has designed a new type of fishing boat fitted with the latest technology that it plans to export to the USA. The costs for the first boat are:

Materials 10,000

Labour-750 hours = 12,000

Overhead-based on labour cost 12,000

Total cost 34,000

Profit mark up 6,800

Selling price 40,800

The plan is to sell all of the boats at full cost plus 20%. The prices quoted will be valid for three months only. The overhead costs quoted for the first boat are at 100% of labour cost. Overheads include freight costs of 1,000 for one boat. The Production Manager estimates that an 80% learning curve will apply to the production work. Due to inflationary pressures in the economy, it is expected that material costs will increase by 5%, freight costs by 7% and labour costs by 2% in four months' time.

A major customer from the Fishing Boat Company (FB) based in the USA has expressed an interest in buying one of the boats, but thinks the price is expensive. FB might want to buy two or more boats during the upcoming months.

FB has asked the following questions:

Q1. If they paid 40,800 for the first boat, what price would they have to pay in FOUR months' time for a second boat?

QII. Would BW quote the same unit price for two boats, if FB ordered the two boats together now?

QIII. If FB bought two boats now at one price, what would be the price per unit for a third and fourth boat, if ordered separately in four months' time?

IV. Could BW quote a single unit price for four boats to be delivered in one months' time?

Required:

Using the cumulative average time learning model

a) Answer the questions posed by FB in points i) to iv) above to 2 decimal places.

b) Create a brief report for Fishing Boat Company summarizing your calculations.