An autoclaves and sterilizers manufacturer has estimated the manufacturing costs of its new product as follows:

Question

An autoclaves and sterilizers manufacturer has estimated the manufacturing costs of its new product as follows: Cost Elements Cost Rate Direct labor $20 per hour Material $270 per unit Overhead costs 110% of direct labor The company's engineer estimated that the production of the new product has a 88% learning curve applied to labor required, and the time to complete the first unit was 54 labor hours. Assume the time required to complete the 10t h unit and the competitor's price of $2053.44 per unit are used for cost estimation purposes. What is the maximum profit margin for the company to remain competitive?

Answer 1

88% learning curve:  

Time for nth unit = (time for first unit)(n^(ln.88/ln2)

Time for 10th unit = (54)(10^(ln.88/ln2)

Time for 10th unit = 35.316 hours

 

Total Cost:

Direct Labor: 20 per hour for 35.316 hours = 706.32

Material Cost = 270

Overhead Cost = 1.10*Direct Labor = 1.10(706.32) = 776.95

Total Cost = 1753.27

 

Maximum Profit Margin to remain competitive:  2053.44 - 1753.27 =  $300.17