The following information is available: Direct labour hours taken to manufacture the first two units: Hours First unit 60 Second unit 48 The following average direct variable costs relate to the manufacture of the first two units of FINO: R/unit Material 620 Labour 440 Variable overheads 324 1384 · Since the first two units were manufactured, material costs have increased by 10% and labour costs by 5%. · Variable overheads – variable per labour hour: R6 · Fixed costs incurred solely for the manufacture of FINO units: R9 254
Tica (Pty) Limited manufactures and sells combined fax and telephone answering machines. In order to tender for a specific contract, the technical team of the company has developed a new model called FINO. To date, two units of FINO have been manufactured and are being used as demonstration models.
The following information is available:
Direct labour hours taken to manufacture the first two units:
Hours
First unit 60
Second unit 48
The following
R/unit
Material 620
Labour 440
Variable overheads 324
1384
· Since the first two units were
· Variable overheads – variable per labour hour: R6
· Fixed costs incurred solely for the manufacture of FINO units: R9 254
Fixed costs of the enterprise are apportioned to products at a rate of 10% of labour costs.
It is expected that the learning curve will be maintained for the manufacture of the first 32 units of FINO.
a) Calculate the learning rate.
b) Calculate the minimum selling price per unit that the enterprise can quote on a contract for 30 units in order only to recover direct costs, and earn a profit of 25% on the selling price. Ignore all costs relating to the manufacture of the first two units.
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