Lake Corporation manufactures specialty components for the electronics industry in a highly labor intensive environment. Arc Electronics has asked Lak... Accounting MCQs | Accounting MCQs

Lake Corporation manufactures specialty components for the electronics industry in a highly labor intensive environment. Arc Electronics has asked Lake to bid on a component that Lake made for Arc last month. The previous order was for 80 units and required 120 hours of direct labor to manufacture. Arc would now like 240 additional components. Lake experiences an 80% learning curve on all of its jobs. The number of direct labor hours needed for Lake to complete the 240 additional components is

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Answer (B) is correct. One common assumption made in a learning curve model is that the cumulative average time per unit is reduced by a certain percentage each time production doubles. An 80% learning curve results in the following performance for the lots shown:
Cumulative
Units Average Hours
80 1.5 hours (120 ÷ 80)
160 1.2 hours (1.5 × .8) 320 .96 hours (1.2 × .8) Thus, to produce 320 units, total production time will be 307.2 hours (320 × .96). The total time for the last 240 units will be 187.2 hours (307.2 – 120).