Chapter6: Proudction Costs
Section: Chapter Questions
Problem 8SQP
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Transcribed Image Text:As a manager have been asked to estimate the total cost of producing
40 engines in your company. Current engines have an output of 135-hp
per engine. 7 years ago, a similar 180-hp engine cost was 4450 KD.
Beside that due to extreme competition in the industry, the cost of an
engine has decreased with 9% only for 3 intervals of time throughout
this period. Total cost consists of engine cost, direct labor cost and
other labor-related costs. Pertinent data are as follows:
Direct labor cost per hour
20 KD per hour
Factory overhead
150% of direct labor
Packing costs
80% of direct labor
Maintenance costs
10% of engine cost
Cost-capacity factor
0.75
Past experience has shown that an 85% learning curve applies to the
labor required producing these engines. Maintenance cost will be paid
only once at the beginning of the second year. Use the estimated time
to complete the 40th engine for the purpose of estimating the direct
labor cost. The time to complete the first engine has been estimated to
be 85 hours.
1. What is the total cost of the engine?
2. What is the total direct labor cost?
3. What is the total cost of the required production?
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