The Eastern Shore Company, which is under contract to the U.S. Navy, assembles troop deployment boats. (Click the icon to view the additional information.) Eastern Shore reports the following cost information for the first PT109 assembled. E (Click the icon to view the cost information.) Read the requirements. III. ? Requirements Data table 1. Prepare a prediction of the total costs for producing the six PT109s for the Navy. 2. Compare the cost predictions from requirement 1 (incremental unit-time learning model) with the cost predictions based on a cumulative average-time learning model which has total costs of $6,094,289. Why are the predictions different? How should Eastern Shore decide which model it should use? Cumulative average-time learning model’s cumulative average time per unit and cumulative total time: Direct materials cost $ 207,000 per PT109 Direct manufacturing labor time for first boat 14,700 direct manufacturing labor-hours Learning curve for manufacturing labor time per boat 90% cumulative average time Direct manufacturing labor costs $ 43 per direct manufacturing labor-hour Variable manufacturing overhead costs $ 29 per direct manufacturing labor-hour Other manufacturing overhead 15% of direct manufacturing labor costs Tooling costs $ 287,000 1 In 0.90 – 0.105361 Using the formula for a 90% learning curve, b = = -0.152004 In 2 0.693147 2 Tooling can be reused at no extra cost because all of its cost has been assigned to the first deployment boat. Number of Cumulative average time Cumulative total time: units per unit: Labor-hours Labor-hours 1 14,700 14,700 2 13,230 26,460 3 12,439 11,907 37,317 47,628 4 5 11,510 57,550 6 11,195 67,170 Print Done 7 10,936 76,552
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