A Metal Works Fabricator Is About to Release a New

question 39

Essay

A metal works fabricator is about to release a new model of his firm's copper sculpture and fountain. The operations manager estimates that this product is subject to a 90 percent learning curve on labor only-the material bill is not affected by experience. The firm prices its work based on cost-the sum of materials plus 30 percent and labor plus 50 percent. (This allows the firm to practice a form of "demand management" for its very popular works.) The first item has already been finished; the material bill was $800 and labor totaled 40 hours. The firm pays its metalworking artisans an average of $18 per hour. What should be the asking price of the first unit? The second?

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Definitions:

Actual Materials

The real quantity and cost of materials used in the production process, as opposed to estimated or standard materials.

Material Price Variance

The difference between the actual cost of direct materials used in production and the standard cost of those materials.

Standard Purchase Price

The predetermined cost of acquiring goods, set for budgeting and costing purposes.

Actual Purchase Price

Actual Purchase Price refers to the actual amount paid for goods or materials, including additional costs such as delivery charges and taxes.