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Comtrex Inc produces towers for telephone companies which incorporate specialized solar voltaic systems that use the suns energy for generating green energy as a means of reducing the cost of operations. Each tower is outfitted with the required infrastructure to satisfy the needs of the communication systems as well as internet ready television and high speed data transfers. It has just completed the prototype for a new system. The information for the production of the new system is shown below.

Direct material cost per unit $300,000

Direct labor time for the assembly of first unit in hours 1,200

Direct labor cost per hour $250

Learning effect for design hours per unit 90%

Variable manufacturing overhead 60% of direct labor cost

Fixed overhead cost is 20% of direct labor cost

(A 90% learning curve implies that b = -0.1520)

The first unit is kept on display to be used as a model for prospective clients to make specific set up requests for their individual needs. A finished system carries a 30% mark up on full cost. The learning effect is expected to cease after the production of 40 units and all units after 40 are expected to take the same time as the 40^th unit.

Required

1. Determine the cumulative average design labor hours for an initial order of 25 units. (3 Marks)
2. Prepare a quotation for the production and sale of the 25 units. (6 Marks)

3) An order has been received for an additional 20 units. Calculate the production cost for the additional 20 units. (8 Marks)

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