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Marshall Co Marshall Received a Quote of $9 Per Unit from Kytel

question 8

Multiple Choice

Marshall Co. produced a pilot run of fifty units of a recently developed piston used in one of its products. Marshall expected to produce and sell 1,950 units annually. The pilot run required an average of.55 direct labor hours per piston for 50 pistons. Marshall experienced an eighty percent learning curve on the direct labor hours needed to produce new pistons. Past experience indicated that learning tends to cease by the time 800 pistons are produced.
Marshall's manufacturing costs for pistons are presented below.
$\begin{array}{lc}\text { Direct labor } & \$ 14.00 \text { per direct labor hour } \\\text { Variable overhead } & 12.00 \text { per direct labor hour } \\\text { Fixed overhead } & 20.00 \text { per direct labor hour } \\\text { Materials } & 5.00 \text { per unit }\end{array}$ Marshall received a quote of $9 per unit from Kytel Machine Co. for the additional 1,900 needed pistons. Marshall frequently subcontracts this type of work and has always been satisfied with the quality of the units produced by Kytel.
If the pistons are manufactured by Marshall Co., the total direct labor hours for the first 800 pistons (including the pilot run) produced is calculated to be (round to two digits after the decimal point) :

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Definitions:

Profit-maximizing Firm

A company that adjusts its production and sales strategies to achieve the highest possible profit, considering its costs and market demand.

Substitution Effect

This effect describes the change in consumption patterns due to a change in the relative prices of goods, leading consumers to substitute more expensive items with cheaper ones.

Output Effect

The impact on total output or production resulting from changes in the price level or other economic factors.

Price of Capital

The cost of using capital goods, represented by interest rates, lease payments, or other measures of the cost of borrowing or using capital.