Question

A product that is very labor intensive assembled at Boyds Aero Structure has an average labor cost of $20 hour. Overhead expenses are charged 100% of labor at this company.

Time for the very first unit=10hours.
Time for the fourth unit=8.1hours.
The learning curve percentage for this operation is_________
A. 90%
B. 85%
C. 95%
D. 75%

Answer 1

The learning curve percentage for the operation at Boyds Aero Structure is calculated using the time for the first and fourth units and associated labor costs. After applying the learning curve model, the learning curve is found to be approximately 90%. Hence, the correct answer is A. 90%.

Step-by-step explanation:

The student's question revolves around finding the learning curve percentage for a labor-intensive product assembled at Boyds Aero Structure. The learning curve model is applied in business and economics to represent the rate at which cumulative production doubles and leads to a reduction in the cost per unit due to gained efficiency and experience. To find the learning curve percentage, we use the formula:

Learning Rate = (Cost of nth Unit / Cost of 1st Unit)log2

Here, we have the time for the first unit as 10 hours and for the fourth unit as 8.1 hours. Assuming the labor cost remains consistent at $20 per hour, the costs would be:

• 1st Unit Cost = 10 hours x $20/hour = $200
• 4th Unit Cost = 8.1 hours x $20/hour = $162

Now, applying the learning curve formula, where n is the number of doubles of production (from 1 to 4 we have one doubling since 22 = 4):

Learning Rate = (162 / 200)1/log2(4)

Learning Rate = (0.81)1/2 = 0.810.5

Learning Rate ≈ 0.90 or 90%

Therefore, the correct option is A. 90%.