Question - PM Manufactures a product called the unit. One batch of units is produced and sold each quarter. It is not possible to hold stocks of units for any significant period.
At a batch of 12000 units, the variable cost of a unit is $15. Variable cost are all labour related and unit production involves an 80%learning curve. Market research indicates that demand per quarter for units relates as follows to the selling price per unit
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Selling price per unit $
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Sales (units)
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25
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11750
|
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30
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11500
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|
35
|
8750
|
|
40
|
7500
|
|
45
|
6000
|
There is a complete discontinuity between the batches as regards learning curve effects .You may assume that the variable cost per unit (h) on an 80 percent learning curve may be obtained from the following formula, where B is the batch size and A is a constant;
Calculate the optimum batch size for unit production cost.