Question

Each time The Stone Company hires a new employee, it must wait for some period of time before the employee can meet production standards. New employees are paid $150 per hour. Management is unsure of the learning curve in its operation, but it knows the first job by a new employee takes 40 hours and the second and third job take 32 and 28 hours respectively. Assume all jobs to be equal in size.

Required:
a. Assuming that the company uses the incremental learning curve method, the total labor cost for 4 units will be closest to _________.

Answer 1

Assuming that the company uses the incremental learning curve method, the total labor cost for 4 units will be closest to 13 hours

Step-by-step explanation:

a. According to the given data we have the following:

The first job takes 40 hours.

The next job takes 32 hours.

So total hours for first 2 jobs = 40+32 = 72

Average cost for first 2 jobs = 72/2 = 36

Learning rate = 36/40 = 90%

Therefore, the average for 4 jobs (double of 2 jobs) shall be 36*90% = 32.40 hours

Hence, Total hours for 4 jobs = 32.40*4 = 129.60 hours or close to 130 hours.

Assuming that the company uses the incremental learning curve method, the total labor cost for 4 units will be closest to 13 hours