As a manager have been asked to estimate the total cost of producing40 engines in your company. Current engines have an output of 135-hpper engine. 7 years ago, a similar 180-hp engine cost was 4450 KD.Beside that due to extreme competition in the industry, the cost of anengine has decreased with 9% only for 3 intervals of time throughoutthis period. Total cost consists of engine cost, direct labor cost andother labor-related costs. Pertinent data are as follows:Direct labor cost per hour20 KD per hourFactory overhead150% of direct laborPacking costs80% of direct laborMaintenance costs10% of engine costCost-capacity factor0.75Past experience has shown that an 85% learning curve applies to thelabor required producing these engines. Maintenance cost will be paidonly once at the beginning of the second year. Use the estimated timeto complete the 40th engine for the purpose of estimating the directlabor cost. The time to complete the first engine has been estimated tobe 85 hours.1. What is the total cost of the engine?2. What is the total direct labor cost?3. What is the total cost of the required production?

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Answered: 1. What is the total cost of the…

1. What is the total cost of the engine? 2. What is the total direct labor cost? 3. What is the total cost of the required production?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

As a manager have been asked to estimate the total cost of producing
40 engines in your company. Current engines have an output of 135-hp
per engine. 7 years ago, a similar 180-hp engine cost was 4450 KD.
Beside that due to extreme competition in the industry, the cost of an
engine has decreased with 9% only for 3 intervals of time throughout
this period. Total cost consists of engine cost, direct labor cost and
other labor-related costs. Pertinent data are as follows:
Direct labor cost per hour
20 KD per hour
Factory overhead
150% of direct labor
Packing costs
80% of direct labor
Maintenance costs
10% of engine cost
Cost-capacity factor
0.75
Past experience has shown that an 85% learning curve applies to the
labor required producing these engines. Maintenance cost will be paid
only once at the beginning of the second year. Use the estimated time
to complete the 40th engine for the purpose of estimating the direct
labor cost. The time to complete the first engine has been estimated to
be 85 hours.
1. What is the total cost of the engine?
2. What is the total direct labor cost?
3. What is the total cost of the required production?

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