Shimbungu construction Ltd limited traditionally designs and manufacturers lightweight aircraft. Orders for these aircraft have decreased over the past two years; so to enable the company to survive, it has been decided by Shimbungu’s board of directors to start manufacturing bigger aircraft.
The production manager expects the first plane to take 330 000 minutes to build, and from past experience believes a 90% learning curve effect could be achieved. The relevant costs are as follows:
| Direct material | N$50 000 per aircraft |
| Direct labour | N$10 per hour |
| Variable overheads | N$0.50 per direct labour hour |
| Fixed overheads | N$1.00 per labour hour |
Profit mark-up is usually 10% per aircraft.
Required:
Fly Namibia Ltd was so impressed by the first four aircraft they had purchased in the previous order that they immediately placed a second order for a further five aircrafts. What price should Shimbungu Limited quote for this next order?
1 Answer