Fundamentals of Cost Accounting 3rd Edition by William N. Lanen, Shannon W. Anderson, Michael Maher

Exercise 36

Learning Curves

Assume that General Dynamics, which manufactures high-technology instruments for spacecraft, is considering the sale of a navigational unit to a government agency in India that wishes to launch its own communications satellite. The government agency plans to purchase 8 units, although it would also consider buying 16 units. General Dynamics has started a chart relating labor time required to units produced.

Unit Produced (X)	Time Required to Produce the X th Unit
1	10,000 hours
2	8,000 hours
4	6,400 hours
8	?
16	?

Required

a. Complete the chart by filling in the labor time required to produce 8 and 16 units.

---

b. Assume that labor time costs $125 per hour. Compare the cost of producing the first unit to the cost of producing the 16th unit. What is the percentage of the cost of the 16th unit to the cost of the first unit?

Step 1 of 3

Cost estimation

Cost estimation is an important exercise because it helps managers in decision making. Correct cost estimates result in cost saving and making business successful. Cost estimates helps managers to evaluate and choose the best alternative. It is important for managers to capture the correct cost for each alternative.

There different methods used for cost estimation like engineering, accounting and statistical analysis.

Learning phenomenon

Learning phenomenon explains the relationship between amount of experience to perform a job and actual time required to perform a job. According to learning phenomenon, the time required to perform a job keeps on reducing and percentage of time required may varies each time or remain constant