Business Plan
Business plan
Part B: Analyzing the New (Maui) Sandal Line
The concept of the learning curve introduces a new dimension; that of the initial units requiring more hours of production as compared to the later units to be produced once the production kicks off. To analyze these costs, a learning curve model must be used. Each of the month’s budgeted production units must be run in the model separately. The learning curve is used since it explains the process of learning a process in the production of a product. For this analysis, a learning curve is used. In the manufacture of the Maui sandal, the workers have learning co-efficient of 80 %.
In analyzing the costs associated with producing the Maui sandal, it is important to note that the company will not stop its production processes between different months. Months 1, 2, 3 and 4 are only used to measure the change of time during the production process.
In the given data, Maui Sandal drops from 596 hours during the first month to 329, 250, 207 for the second, third and fourth months respectively. The unit batch cost also drops during the entire period as shown in the tabular presentation above. The highest unit cost is recorded during the first month ($ 643).
Besides, the rise in the cumulative production costs with the increase in the number of batches produced is acceptable. This is because the rise is negligent in comparison to the profits that will arise. The efficiency of the workers is expected to improve as more pairs of Maui shoes are continually manufactured using the similar process. It is expected that the continued production of the product is likely to result into declining unit costs and unit manufacturing time. With fixed selling prices for the Maui Sandal, the company would generate higher profits as a result of the reduction in the cost of manufacturing an individual sandal.
