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Chair Co has developed a new type of luxury car seat. The estimated labour time for the first unit is 12 hours but a learning curve of 75% is expected to apply for the first eight units produced. The cost of labour is $15 per hour. The cost of materials and other variable overheads is expected to total $230 per unit. Chair Co plans on pricing the seat by adding a 50% mark-up to the total variable cost per seat, with the labour cost being based on the incremental time taken to produce the 8th unit. Required: (b)The first phase of production has now been completed for the new car seat. The first unit actually took 12·5 hours to make and the total time for the first eight units was 34·3 hours, at which point the learning effect came to an end. Chair Co are planning on adjusting the price to reflect the actual time it took to complete the 8th unit. Required: (i) Calculate the actual rate of learning and state whether this means that the labour force actually learnt more quickly or less quickly than expected. (3 marks) (ii) Briefly explain whether the adjusted price charged by Chair Co will be higher or lower than the price you calculated in part (a) above. You are NOT required to calculate the adjusted price.(2 marks)

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The Hi Life Co (HL Co) makes sofas. It has recently received a request from a customer to provide a one-off order of sofas, in excess of normal budgeted production. The order would need to be completed within two weeks. The following cost estimate has already been prepared:Notes1 The fabric is regularly used by HL Co. There are currently 300㎡ in inventory, which cost $17 per ㎡ . Thecurrent purchase price of the fabric is $17·50 per ㎡ .2 This type of wood is regularly used by HL Co and usually costs $8·20 per ㎡ However, the company’s current supplier’s earliest delivery time for the wood is in three weeks’ time. An alternative supplier could deliver immediately but they would charge $8·50 per ㎡ . HL Co already has 500 ㎡ in inventory but 480 ㎡ of this is needed to complete other existing orders in the next two weeks. The remaining 20 ㎡ is not going to be needed until four weeks’ time.3 The skilled labour force is employed under permanent contracts of employment under which they must be paid for 40 hours’ per week’s labour, even if their time is idle due to absence of orders. Their rate of pay is $16 per hour, although any overtime is paid at time and a half. In the next two weeks, there is spare capacity of 150 labour hours.4 There is no spare capacity for semi-skilled workers. They are currently paid $12 per hour or time and a half for overtime. However, a local agency can provide additional semi-skilled workers for $14 per hour.5 The $3 absorption rate is HL Co’s standard factory overhead absorption rate; $1·50 per hour reflects the cost of the factory supervisor’s salary and the other $1·50 per hour reflects general factory costs. The supervisor is paid an annual salary and is also paid $15 per hour for any overtime he works. He will need to work 20 hours’overtime if this order is accepted.6 This is an apportionment of the general administration overheads incurred by HL Co.Required:
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(a) Briefly explain why the senior stylists’ time has been described as the ‘bottleneck activity’, supporting your answer with calculations.(4 marks)
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