Specimen
1710 others answered this question

MC Question 22

Chair Co has in development several new products. One of them is a new type of luxury car seat. The estimated labour time for the first unit is 12 hours but a learning curve of 75% is expected to apply for the first eight units produced. The cost of labour is $15 per hour.

The cost of materials and other variable overheads is expected to total $230 per unit. Chair Co plans on pricing the seat by adding a 50% mark-up to the total variable cost per seat, with the labour cost being based on the incremental time taken to produce the 8th unit.

The first phase of production has now been completed for the new car seat. The first unit actually took 12·5 hours to make and the total time for the first eight units was 34·3 hours, at which point the learning effect came to an end.

Chair Co are planning on adjusting the price to reflect the actual time it took to complete the 8th unit.

What was the actual rate of learning which occurred?

A. 65·7%
B. 58·6%
C. 70·0%
D. 76·5%