Learning Curve – NBC Institute

May 2023 – L2 – SA – Q7 – Pricing Decisions

Calculation of minimum price Kola Plc should quote for 400 units of special security padlock keys using learning curve principles.

Question

Kola Plc produces and sells a brand of security padlock keys. Its budget for next year is as follows:

Further research showed that the time taken for the first 50 units was 1,800 hours and the first 100 units took 3,000 hours. The customer is insistent that Kola Plc at least quotes a price for his requirement of 400 units.

Kola Plc is reluctant because the order would divert labour away from the regular padlock keys, and they cannot recruit more staff. If the contract is taken on, the same material would be used, with fixed production overheads of N150,000 and N30,000 administration costs.

Required:

Calculate the minimum price Kola Plc should quote for the 400 units of the special padlock keys.
(Total 15 Marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Fixed Costs, Learning Curve, Special Order Pricing, Variable Costs
Level: Level 2

Topic: Pricing Decisions
Series: MAY 2023

PM – Nov 2019 – L2 – Q4 – Cost Management Strategies

Calculate the learning curve rate, forecast shut-down costs for year 2 and 3, and discuss potential errors in the forecast.

Question

Akoko plc. has recently developed a new product called “EKO” which has been in production for the past year. The plant producing “EKO” shuts down for routine inspection and maintenance every three months, and during the first year’s operation, the costs of shut-down have been as follows:

Quarter	Shut-Down Cost (₦)
I	36,000
2	28,800
3	27,000
4	25,200

The management accountant attempts to forecast maintenance costs for the coming year. On examining the data, it appears that these costs have steadily decreased, which may be due to maintenance engineers becoming more efficient or the plant settling down after initial operational issues. The learning curve might explain this trend.

Required:
a. Explain the concept of a learning curve. (4 Marks)
b. Estimate the rate of learning inherent in the data and explain its meaning. (4 Marks)
c. Using the learning rate determined, forecast the total cost of shut-down for routine maintenance during the coming year. (5 Marks)
d. Assume learning ceases at the end of the second year; forecast the total cost of shut-down for routine maintenance during the third year. (4 Marks)
e. State TWO specific reasons why this forecast may be inaccurate. (3 Marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Cost reduction, Forecasting, Learning Curve, Maintenance
Level: Level 2

Topic: Cost Management Strategies
Series: NOV 2019

PM – Nov 2018 – L2 – Q4 – Costing Systems and Techniques

Calculates labour costs, profitability, and material cost based on ARR for Julmat Limited’s new product.

Question

Julmat Limited, a manufacturing company, has developed a new product that requires an initial capital investment of N5m. At the end of the product’s life, the capital equipment is expected to have a value of N3m. Julmat Limited requires an Annual Rate of Return (ARR) of 20% on its average investment on products of this type. The new product has an expected life of one year before it will be replaced by a more advanced product.

Production
The new product will be manufactured in batches of 1,000 units using a just-in-time production system.

The first batch is expected to incur a direct labour cost of N100,000, but a 75% learning curve is expected until the cumulative production equals 30 batches.

Thereafter, each batch is expected to incur the same direct labour cost as that of the 30th batch.

The expected direct materials cost for the first batch is N50,000. However, an experience curve is expected to apply to the first 10 batches produced; thereafter, no further savings in material costs per batch are expected.

Other production costs are expected to be N10,000 per batch.

Sales
Sales of the new product are expected as follows for each of the four stages of the product life cycle:

Stage	Units Sold	Selling Price per Unit (N)
Introduction	10,000	120
Growth	30,000	100
Maturity	60,000	80
Decline	30,000	50

Required:
a. Prepare calculations to show the total direct labour cost of the product for each of the four stages of the product life cycle. (6 Marks)
b. Assuming that there is no experience curve in relation to the product’s direct material cost, prepare a statement that shows the profitability of the new product for each of the four stages of the product life cycle individually and in total for the product’s life. (5 Marks)
c. Assuming that the direct material experience curve applies, calculate the average direct material cost per batch that must be incurred in order for the company to meet its ARR target over the life cycle of the product. (4 Marks)
d. Discuss the concept of life cycle costing and its effect on product pricing strategies at different stages of the product life cycle. Use the Julmat Limited scenario to illustrate your answer. (5 Marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: ARR, Financial Performance, Learning Curve, Life Cycle Costing
Level: Level 2

Topic: Costing Systems and Techniques
Series: NOV 2018

May 2023 – L2 – SA – Q7 – Pricing Decisions

Calculation of minimum price Kola Plc should quote for 400 units of special security padlock keys using learning curve principles.

Question

Kola Plc produces and sells a brand of security padlock keys. Its budget for next year is as follows:

Required:

Calculate the minimum price Kola Plc should quote for the 400 units of the special padlock keys.
(Total 15 Marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Fixed Costs, Learning Curve, Special Order Pricing, Variable Costs
Level: Level 2

Topic: Pricing Decisions
Series: MAY 2023

PM – Nov 2019 – L2 – Q4 – Cost Management Strategies

Calculate the learning curve rate, forecast shut-down costs for year 2 and 3, and discuss potential errors in the forecast.

Question

Quarter	Shut-Down Cost (₦)
I	36,000
2	28,800
3	27,000
4	25,200

Answer

Find Related Questions by Tags, levels, etc.

Tags: Cost reduction, Forecasting, Learning Curve, Maintenance
Level: Level 2

Topic: Cost Management Strategies
Series: NOV 2019

PM – Nov 2018 – L2 – Q4 – Costing Systems and Techniques

Calculates labour costs, profitability, and material cost based on ARR for Julmat Limited’s new product.

Question

Production
The new product will be manufactured in batches of 1,000 units using a just-in-time production system.

The first batch is expected to incur a direct labour cost of N100,000, but a 75% learning curve is expected until the cumulative production equals 30 batches.

Thereafter, each batch is expected to incur the same direct labour cost as that of the 30th batch.

Other production costs are expected to be N10,000 per batch.

Sales
Sales of the new product are expected as follows for each of the four stages of the product life cycle:

Stage	Units Sold	Selling Price per Unit (N)
Introduction	10,000	120
Growth	30,000	100
Maturity	60,000	80
Decline	30,000	50

Answer

Find Related Questions by Tags, levels, etc.

Tags: ARR, Financial Performance, Learning Curve, Life Cycle Costing
Level: Level 2

Topic: Costing Systems and Techniques
Series: NOV 2018

Question Tag: Learning Curve

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May 2023 – L2 – SA – Q7 – Pricing Decisions

Calculation of minimum price Kola Plc should quote for 400 units of special security padlock keys using learning curve principles.

PM – Nov 2019 – L2 – Q4 – Cost Management Strategies

Calculate the learning curve rate, forecast shut-down costs for year 2 and 3, and discuss potential errors in the forecast.

PM – Nov 2018 – L2 – Q4 – Costing Systems and Techniques

Calculates labour costs, profitability, and material cost based on ARR for Julmat Limited’s new product.

May 2023 – L2 – SA – Q7 – Pricing Decisions

Calculation of minimum price Kola Plc should quote for 400 units of special security padlock keys using learning curve principles.

PM – Nov 2019 – L2 – Q4 – Cost Management Strategies

Calculate the learning curve rate, forecast shut-down costs for year 2 and 3, and discuss potential errors in the forecast.

PM – Nov 2018 – L2 – Q4 – Costing Systems and Techniques

Calculates labour costs, profitability, and material cost based on ARR for Julmat Limited’s new product.

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May 2023 – L2 – SA – Q7 – Pricing Decisions

Calculation of minimum price Kola Plc should quote for 400 units of special security padlock keys using learning curve principles.

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PM – Nov 2019 – L2 – Q4 – Cost Management Strategies

Calculate the learning curve rate, forecast shut-down costs for year 2 and 3, and discuss potential errors in the forecast.

You're reporting an error for "PM – Nov 2019 – L2 – Q4 – Cost Management Strategies"

PM – Nov 2018 – L2 – Q4 – Costing Systems and Techniques

Calculates labour costs, profitability, and material cost based on ARR for Julmat Limited’s new product.

You're reporting an error for "PM – Nov 2018 – L2 – Q4 – Costing Systems and Techniques"

May 2023 – L2 – SA – Q7 – Pricing Decisions

Calculation of minimum price Kola Plc should quote for 400 units of special security padlock keys using learning curve principles.

You're reporting an error for "May 2023 – L2 – SA – Q7 – Pricing Decisions"

PM – Nov 2019 – L2 – Q4 – Cost Management Strategies

Calculate the learning curve rate, forecast shut-down costs for year 2 and 3, and discuss potential errors in the forecast.

You're reporting an error for "PM – Nov 2019 – L2 – Q4 – Cost Management Strategies"

PM – Nov 2018 – L2 – Q4 – Costing Systems and Techniques

Calculates labour costs, profitability, and material cost based on ARR for Julmat Limited’s new product.

You're reporting an error for "PM – Nov 2018 – L2 – Q4 – Costing Systems and Techniques"

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