Should Cost Model
Industry Average Should Cost
Element
Direct Material
63.125
Direcr Labor
8.211
Factory O/H
9.854
81.190
Operating Expenses
14.986
Operating Profit
6.466
Should Cost Price
102.642
Should Cost Based on Hourly Wage
Element
Direct Material
486.734
Direcr Labor
63.315
Factory O/H
75.978
626.027
Operating Expenses
115.550
Operating Profit
49.861
Should Cost Price
791.438
Element
90% L/C
Direct Material
90.000
Direcr Labor
30.234
Factory O/H
36.281
Total Cost
156.516
SG&A & Profit
38.190
Should Cost Price
194.706
90% Curve
-0.152
90.619
31.711
Total Cost to produce 1000 Unit
317.110
Cost to produce the rest 900 for a batch of 100
30.234
Max to pay for the 900 units
1752.350
What is the most you would be willing to pay for the next 900 pieces, assuming a 90% learning curve? What assumptions did you make in coming up with this estimate?
We would be willing to pay $1,752 for the next 900 pieces with a 90% learning curve,
Assumptions:
“A learning curve of 90% is achieved.
The costs of direct materials remain unaffected.
Profit margins and SG&A percentage remain the same.”