Question

XYZ Company supplies water tankers to the government. The first water tanker takes 20,000 labour hours. The government auditors suggest that there should be a 90% learning effect rate. The Management expects an order of 8 water tankers in the next year. What will be the labour cost if the company will incur at the rate of Rs. 20 per hour?

Answer 1

(i) Given 20,000 labour hours = cumulative average

(ii) 90% learning effect

(iii) Rs. 20 per hour

(iv) 8 water tankers

| Units produced | Total output in units | Cumulative average time (unit - hours) | Total hour |
| 1 | 1 | 20000 | 20000 |
| 1 | 2 | 90% of 20000 = 18000 | 36000 |
| 2 | 4 | 90% of 18000 = 16200 | 64,800 |
| 4 | 8 | 90% of 16200 = 14, 580 | 116640 |

Time taken for 8 water tankers =116640 hrs.

Total labour cost = Total no. of hours × per hour 20 116640 × 20 = 2332800