CMA Study Group

  • 1.  please answer it

    Posted 09-02-2013 05:28 AM
    Lake Corporation manufactures specialty components for the electronics industry in a highly labor intensive environment. Arc Electronics has asked Lake to bid on a component that Lake made for Arc last month. The previous order was for 80 units and required 120 hours of direct labor to manufacture. Arc would now like 240 additional components. Lake experiences an 80 percent learning curve on all of its jobs. The number of direct labor hours needed for Lake to complete the 240 additional components is


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    Ahmed Mahmoued Mohamed
    Accountant
    Global Art
    Doha
    Qatar
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  • 2.  RE:please answer it

    Posted 09-02-2013 11:02 AM
    Hi,

    The correct answer is C. 187.2 hours.

    Lots Total Units Labor Hours
    1 80 120.0 =1*120
    2 160 192.0 =2*120*.8
    4 320 307.2 =2*120*.8*.8

    307.2 hours for 320 units, first lot of 80 units already produced. To produce 240 units (320-80) 187.2 hours required i.e (307.2-120).

    Thanks,
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    Mohammad Muzammil Goundi
    Analyst
    Belgaum
    India
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    Original Message


  • 3.  RE:please answer it

    Posted 09-03-2013 06:29 AM
    hey,

    Let assume that 80 units is equal to one lot. The first lot requires 120 hours and there is a 80% learning curve in producing each subsequent lot.

    We need to find out the efforts required to produce lot 2, lot 3 and lot 4 (80+80+80 = 240)

    X% Learning curve means that when we double the number of units, the time required/unit is X%
    of the original time. So, for 80% learning curve, time required to produce 2nd unit is 80% of first unit, time required to produce 4th unit is 80% of second unit, time required to produce 8th unit is 80% of 4th unit and so on.   

    Based on this, it is easy to calculate the following:
    Time required to produce lot 2: =80% of 120 = 96 hrs
    Time required to produce lot 4: = 80% of 96 = 76.8 hrs

    Now, the issue is to calculate the time required for lot 3:
    Here we have to use the following formula:
    T(N) = T(1)*(N^b)
    Where T(N) = time for the Nth unit
    T(1) = Time for first unit
    B = log of learning rate/log 2

    (read more about this here - http://wps.prenhall.com/wps/media/objects/2234/2288589/ModE.pdf)

    Using this formula: time required for lot 3 = 84.25 units.

    Hence the total time required to produce 240 units is 96+84.25+76.8 = 257.

    I will go with the nearest option ie. 256.

    Please let me know the correct answer.

    Thanks,
    Ashutosh
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    Ashutosh Srivastava
    Other
    Bristlecone
    Mumbai
    India
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    Original Message


  • 4.  RE:please answer it

    Posted 09-04-2013 06:14 AM
    Ashutosh,

    Your answer seems to be incorrect. They are not asking for 3rd lot, they are asking, hours for additional 240 Units with 80% learning curve.

    Because, they have already produced the 1st lot of 80 units with 120 hrs. From second lot onwards, they will be going for 80% learning curve for 240 units of additional.

    So, 1st  80 Units = 120 hrs
          2nd 160 Units = 120 x .80 = 96 hrs, this will be multiplied by 2 = 192 hrs
          4rd  320 units = 96 x .80 = 76.8 hrs, this will be multiplied by 4 = 307.2 hrs.

    Since during 4th learning they produced 320 units with 307.2 hrs. Now, how many hrs required for additional 240 units from 1st 80 units of production.

    So, 320 units - 80 Units = 240 units produced thru to 307.2 hrs - 120 hrs = 187.2 hrs

    This is the correct answer.

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    Ganesan Sivalingam
    Accountant
    Sharqiyah Desalination Co SAOG
    Muscat, Sultanate of Oman
    Oman
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    Original Message