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Cam Co manufactures webcams, devices which can provide live video and audio streams via personal computers. It has recently been suffering from liquidity problems and hopes that these will be eased by the launch of its new webcam, which has revolutionary audio and video quality.The webcam is expected to have a product life cycle of two years. Market research has already been carried out to establish a target selling price and projected lifetime sales volumes for the product. Cost estimates have also been prepared, based on the current proposed product specification. Cam Co uses life cycle costing to work out the target costs for its products. You are provided with the following relevant information for the webcam:Projected lifetime sales volume 50,000 unitsTarget selling price per unit $200 Target profit margin 35% Note. Estimated lifetime cost per unit:
Manufacturing costs:
Direct material (bought in parts) 40
Direct labour: 26
Machine costs 24
Quality control costs 10. The following information has been identified as relevant:(1)Direct material cost: all of the parts currently proposed for the webcam are bespoke parts.However, most of these can actually be replaced with standard parts costing 55% less. However,three of the bespoke parts, which currently account for 20% of the estimated direct material cost,cannot be replaced, although an alternative supplier charging 10% less has been sourced for these parts.‘(2)Direct labour cost: the webcam uses 45 minutes of direct labour, which costs $34.67 per hour. Theuse of more standard parts, however, will mean that while the first unit would still be expected totake 45 minutes, there will now be an expected rate of learning of 90% (where ‘b’ = – 0.152). This will end after first 100 units.’
Q: What is the average direct labour cost per unit in light of new info in point 2?
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