Question: ESTIMATING PRICES USING LEARNING RATES
A buyer has placed an order with a supplier for 100 pieces at a per-unit price of $281 and has collected the following cost data:
Direct labor $50 (5 hours at $10 per hour)
Overhead $75 (150% of direct labor)
Total costs $225
Profit (25%) $56
Total per unit $281
The buyer now wants to place an order for an additional 700 pieces.
What do you estimate the buyer should pay per unit for the next 700 pieces assuming the supplier demonstrates a 75% learning curve? What if the learning rate is actually 85%? What do you estimate is the per unit cost of the next 700 pieces?