A learning curve of 80% assumes that direct labor costs are reduced by 20% for each doubling of output. What is the incremental cost of the sixteenth ... Accounting MCQs | Accounting MCQs

A learning curve of 80% assumes that direct labor costs are reduced by 20% for each doubling of output. What is the incremental cost of the sixteenth unit produced as an approximate percentage of the first unit produced?

41% 31%51% 64%Show Result

Correct - Your answer is correct.

Wrong - Your answer is wrong.

Detailed Answer

Answer (B) is correct. With an 80% learning curve, the average cost after 8 units is 51.20% of the cost of the first unit (100% × 80% × 80% × 80%). After 16 units, the average cost is 40.96% (51.20% × 80%). Thus, the average cost of units in the last batch (units 9 through 16) must have been 30.72% [(40.96% × 2) – 51.20%].