As a manager have been asked to estimatethe total cost of producing 20 engines in yourcompany. Current engine blocks have anoutput of 150-hp per engine. 5 years ago, asimilar 180-hp engine block cost was 8150KD. Beside that due to extreme competitionin the industry, the cost of an engine blockhas decreased with 11% only for 2 intervals oftime throughout this period. Total costconsists of engine block cost, direct laborcost and other labor-related costs. Pertinentdata are as follows:Direct labor cost perhour25 KD per hour120% of direct laborFactory overheadPacking costs70% of direct laborMaintenance costs10% of engine costCost-capacity factor0.75Past experience has shown that an 85%learning curve applies to the labor requiredproducing these engines. Maintenance costwill be paid only once at the beginning of thesecond year. Use the estimated time tocomplete the 10th engine for the purpose ofestimating the direct labor cost and multiplyby the number of engines to find total cost.The time to complete the first engine hasbeen estimated to be 85 hours. 1. What is the cost of the engine block?2. What is the direct labor cost?3. What is the total cost of the requiredproduction for all engines?

A part of the wage bill or payroll that can be specifically and consistently assigned to or…

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

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

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 20 engines in your
company. Current engine blocks have an
output of 150-hp per engine. 5 years ago, a
similar 180-hp engine block cost was 8150
KD. Beside that due to extreme competition
in the industry, the cost of an engine block
has decreased with 11% only for 2 intervals of
time throughout this period. Total cost
consists of engine block cost, direct labor
cost and other labor-related costs. Pertinent
data are as follows:
Direct labor cost per
hour
25 KD per hour
120% of direct labor
Factory overhead
Packing costs
70% 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 10th engine for the purpose of
estimating the direct labor cost and multiply
by the number of engines to find total cost.
The time to complete the first engine has
been estimated to be 85 hours.

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

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