CMA Final · Strategic Cost Management · Learning Curve
Sagar Industries has already made 4 units of a machine on an 80% cumulative average-time learning curve. The first unit took 1,000 labour hours. A repeat order for 4 more units now comes in. Labour costs ₹50 per hour and material costs ₹20,000 per unit. What is the relevant cost of the repeat order of 4 units?
The repeat order costs ₹1,56,800. Eight units take 4,096 hours and the first four took 2,560 hours, so the repeat batch needs 1,536 hours, which is ₹76,800 at ₹50 per hour. Adding material of ₹80,000 for four units gives the total.
- A₹1,56,800Correct
- B₹2,08,000
- C₹2,80,000
- D₹2,84,800
Explanation
The first 8 units take 8 × 1,000 × 0.8³ = 4,096 hours. The first 4 units took 4 × 1,000 × 0.8² = 2,560 hours. The repeat order therefore needs 1,536 hours, costing ₹76,800 in labour. Material is 4 × ₹20,000 = ₹80,000, so the total is ₹1,56,800. The ₹2,08,000 option wrongly restarts the curve at unit 1 for the repeat order, and ₹2,84,800 uses the labour for all 8 units.
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