1. MOBI CO
Mobi Co produces microphones for mobile phones and operates a standard costing system. Before production commenced, the standard labour time per batch for its latest microphone was estimated to be 200 hours. The standard labour cost per hour is $12 and resource allocation and cost data were therefore initially prepared on this basis.
Production of the microphone started in July and the number of batches assembled and sold each month was as follows:
Month No of batches assembled and sold
The first batch took 200 hours to make, as anticipated, but, during the first four months of production, a learning effect of 88% was observed, although this finished at the end of October. The learning formula is shown on the formula sheet and at the 88% learning rate the value of b is –0.1844245.
Mobi Co uses ‘cost plus’ pricing to establish selling prices for all its products. Sales of its new microphone in the first five months have been disappointing. The sales manager has blamed the production department for getting the labour cost so wrong, as this, in turn, caused the price to be too high. The production manager has disclaimed all responsibility, saying that, ‘as usual, the managing director prepared the budgets alone and didn’t consult me and, had he bothered to do so, I would have told him that a learning curve was expected.’
A. Calculate the actual total monthly labour costs for producing the microphones for each of the five months from July to November.