The Direct Labour Time Required to Produce the First Sailboat

question 125

Multiple Choice

The direct labour time required to produce the first sailboat of a particular model was 3000 hours. If the company believes that an 80% learning curve applies to the production of this model sailboat then the direct labour time required to produce the 2^nd boat is estimated to be

• A) 600 hours.
• B) 2,400 hours.
• C) 3,600 hours.
• D) 4,000 hours.

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Definitions:

Incremental Cost Approach

A method that analyzes the financial information relevant to a decision by focusing on the additional or incremental costs involved.

Discount Rate

The interest rate used in discounted cash flow analysis to calculate the present value of future cash flows.

Salvage Value

The estimated residual value of an asset after it has reached the end of its useful life.

Overhaul Costs

Overhaul costs are the expenses associated with major maintenance or the complete refurbishing of equipment, machinery, or a facility to extend its life and efficiency.