Acme Is Exploring Two Locations for a New Plant to Supply

question 2

Essay

Acme is exploring two locations for a new plant to supply product for a government contract.They dispatch a team of industrial engineers and cost estimators to the Minneapolis-St.Paul area of Minnesota and to Kennewick-Pasco-Richland area in Washington.After conducting some tests,the teams return with some unusual findings,the Minneapolis-St.Paul workers seem to obey classic learning effect rules;their learning rate is 80% and is based on a doubling of output.They are much slower than their counterparts at the other site;it is estimated that the first batch units they assemble will take them 700 hours.The workforce in the Kennewick-Pasco-Richland area is much faster;their first batch will take only 470 hours.Strangely,these workers also exhibit learning effects,but their learning is based on a tripling of output rather than the traditional doubling and their rate is 78%.How many batches must be made before Minneapolis-St.Paul's time falls below Kennewick-Pasco-Richland's?

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Definitions:

Absorption Costing

An accounting method that includes all manufacturing costs - direct materials, direct labor, and both variable and fixed overheads - in the cost of a product.

Variable Costing Income (VCI)

An accounting method that includes only variable costs—costs that change with production level—in calculating net income.

Full Costing Income (FCI)

A method of accounting that allocates all fixed and variable costs to products, operations or projects to determine profitability.

Consolidated Accounts

Financial statements that represent the combined financial activities of a parent company and its subsidiaries.