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York Innovation Researchers (YIR) researched and develops quick chilling equipment. This equipment can chill the cold drinks very quickly. Kola Company gave first order to supply 25 units. YIR produced and supplied these 25 units to Kola Company. Three factors involved, technical labor hours, production labor hours and cost of material. The first unit produced by YIR took 158 technical labor hours, 74 production labor hours and material cost was $11600. They determined learning rate of 75% in technical labor hours, 70% in production labor hours and 90% in material cost. YIR pay $26 per hour to their technical labors and $21 per hour to their production labors. Kola Company placed another order for 65 units immediately after receiving the first order. Learning in all three factors continues and YIR pay rate to its labor and cost of material is not changed.

(a) What would be the total cost of this follow-on contract?

(b) What will be the cost of twenty fifth unit of this follow on contract?

(c) Kola placed another order for 160 more units. Suppose there was significant delay between the second order and this order.

During this time, equipment, personnel from technical and production department were released to other projects.

YIR increased 20% pay rate of technical and production labors and cost of material increased by 15%.

Explain how this delay and changes would affect the costing of third order. Justify your answer and calculate costs when conditions are totally in YIR favor and when conditions are totally not in YIR favor?

Operation Management, Management Studies

  • Category:- Operation Management
  • Reference No.:- M92770383

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