Should Cost Model

1 Industry Average Should Cost

Element % $

Direct Material 62% 63.125

Direcr Labor 8% 8.211

Factory O/H 10% 9.854

COGS 79% 81.190

Operating Expenses 15% 14.986

Operating Profit 6.3% 6.466

Should Cost Price 100% 102.642

Should Cost Based on Hourly Wage

Element % $

Direct Material 62% 486.734

Direcr Labor 8% 63.315

Factory O/H 10% 75.978

COGS 79% 626.027

Operating Expenses 15% 115.550

Operating Profit 6.3% 49.861

Should Cost Price 100% 791.438

Element $ 90% L/C

Direct Material 90 90.000

Direcr Labor 45 30.234

Factory O/H 54 36.281

Total Cost 189 156.516

SG&A & Profit 61 38.190

Should Cost Price 250 194.706

90% Curve -0.152

a= 90.619

Y= 31.711

Total Cost to produce 1000 Unit 317.110

Cost to produce the rest 900 for a batch of 100 30.234

Max to pay for the 900 units 1752.350

What is the most you would be willing to pay for the next 900 pieces, assuming a 90% learning curve? What assumptions did you make in coming up with this estimate?

We would be willing to pay $1,752 for the next 900 pieces with a 90% learning curve,

Assumptions:

"A learning curve of 90% is achieved.

The costs of direct materials remain unaffected.

Profit margins and SG&A percentage remain the same."