Fact Pattern: Donehart Corporation produces agricultural vehicles. Most of the component
parts for these vehicles are subcontracted to reliable vendors. The final assembly of all vehicles
is accomplished at Donehart's plant. Donehart's Engineering Department has developed a new
fuel injection system that can be produced in-house because of the availability of production
capacity. The first production run of the new fuel injection system has already been completed
in-house. This 80-unit production run took 60 direct labor hours per unit to produce based on the
cumulative average labor hours per fuel injection unit. Donehart has experienced an 80%
learning curve with similar products, and this experience indicates that learning tends to cease by
the time 640 systems are produced. Donehart's direct labor cost (including employee benefits) is
$18 per direct labor hour. Donehart's management must decide whether to continue producing
the fuel injection system or to subcontract the work. Donehart's purchasing agent has received a
proposal from Midland, Inc., a company specializing in fuel injection systems. From past
contracts, Midland has proven to be efficient and reliable. The terms of Midland's proposal are
outlined below.
- Donehart must supply all materials required for the fuel injection system units.
- The first 80 units produced by Midland will require direct labor input at the rate of 56 hours per unit. Current direct
labor cost is $20 per hour.
- The direct labor cost charged to Donehart will be the hourly rate in effect at the time the work is performed.
Midland is currently negotiating its labor contract, which includes a 4% increase in direct labor cost and should be
applicable when Donehart signs the contract.
- A learning curve factor of 75% will be applied through the first 640 units produced, and all benefits derived from
the learning factor will accrue to Donehart.
- Donehart must pay the actual labor cost incurred plus a 5% margin.
Question: 19If Donehart manufactures the units in-house, how many total hours will it take to complete 1,000
units?
A. 8,294.4 hours.
B. 19,660.8 hours.
C. 24,330 hours.
D. 27,955.2 hours
Please help me to understand?
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Ahmed Kamel
Accountant at CEMEX
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