Cost Management 6th Edition by Edward Blocher,David Stout ,Paul Juras,Gary Cokins

Exercise 45

Learning Curves The Mad Hatter (TMH) is a Newark, New Jersey, manufacturer of hats and gloves. On March 11, 2013, the company purchased a new machine to aid in producing the hat product lines. Production efficiency on the new machine increases with the workforce experience. It has been shown that as cumulative output on the new machine increases, average labor time per unit decreases up to the production of at least 3,200 units. As TMH's cumulative output doubles from a base of 100 units produced, the average labor time per unit declines by a learning rate of 80%. TMH has developed a new style of men's hat to be produced on the new machine. One hundred of these hats can be produced in a total of 25 labor-hours. All other direct costs to produce each hat are $12, excluding direct labor cost. Direct labor cost per hour is $25. Fixed costs are $8,000 per month, and TMH has the capacity to produce 3,200 hats per month.
Required TMH plans to set the selling price for the new men's hat at 200% of direct production cost. If the company is planning to sell 100 hats, what is the selling price If the plan is to sell 800 hats, what is the selling price