Dench manufacturing has received a special order from Sands to produce 225 components to be incorporated into Sand's product. The components have a high cost, due to the expertise required for their manufacture. Dench produces the components in batches of 15, and as the ones required are to be custom-made to Sands' specifications, a 'prototype' batch was manufactured with the following costs:
Additional information with respect to the workforce is noted below:
Skilled Virtually a permanent workforce that has been employed by Dench for a long period of time. These workers have a great deal of experience in manufacturing components similar to those required by Sands, and turnover is virtually non-existent.
Semi-Skilled Hired by Dench on an 'as needed' basis. These workers would have had some prior experience, but Dench management believe the level to be relatively insignificant. Past experience shows turnover rate to be quite high, even for short employment periods.
Dench's plans are to exclude the prototype batch from Sands' order. Management believes a 80% learning rate effect is experienced in this manufacturing process, and would like a cost estimate for the 225 components prepared on that basis.
Required
a) Prepare the cost estimate, assuming an 80% learning rate is experienced.
b) Briefly discuss some of the factors that can limit the use of learning curve theory in practice.