Learning Curves Hat Tricks Company (HTC) is a Buffalo, New York, manufacturer of hats andgloves. Recently, 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 beenshown that as cumulative output on the new machine increases, average labor time per unit decreasesup to the production of at least 3,200 units. As HTC’s cumulative output doubles from a base of 100units produced, the cumulative average labor time per unit declines by a learning rate of 80%.HTC has developed a new style of men’s hat to be produced on the new machine. One hundredof these hats can be produced in a total of 40 labor hours. All other direct costs to produce eachhat are $12 per hat, excluding direct labor cost. Direct labor cost per hour is $25. Fixed costs are$8,000 per month, and HTC has the capacity to produce 3,200 hats per month.Required HTC plans to set the selling price for the new men’s hat at 200% of direct production cost. Ifthe company is planning to sell 100 hats, what is the selling price? If the plan is to sell 800 hats, what shouldbe the selling price?
Learning
gloves. Recently, 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 HTC’s cumulative output doubles from a base of 100
units produced, the cumulative average labor time per unit declines by a learning rate of 80%.
HTC 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 40 labor hours. All other direct costs to produce each
hat are $12 per hat, excluding direct labor cost. Direct labor cost per hour is $25. Fixed costs are
$8,000 per month, and HTC has the capacity to produce 3,200 hats per month.
Required HTC 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 should
be the selling price?
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