Reference no: EM133184010

Question - Lena Lollipops produces lollipops by batch. It has established that there is a certain learning curve pattern that is present in its production. When the very first batch was produced, a total of P2,000 was incurred, of which 50% was for materials and the rest for labor and variable overhead. Overhead was determined to have the same behavior as labor costs. For the third and fourth batches, a total of P2,960 was incurred for production. This sums up their total production cost to P6,560 since they began operations. In this batch, overhead costs equate to one-fourth of total labor costs. Lena Lollipops have already produced 16 batches in total. Candy Man Store placed a large order of 16 additional batches of lollipops to be distributed in their stores.

1. What is the average cost of labor per batch at a production level of 16 batches?

2. How much would be the total production cost for the order?

3. How much labor cost would be incurred for the order?

4. If each batch has 500 lollipops in total, at what price per lollipop would Lena lollipops earn a 20% profit on cost for the order of Candy Man Store?

5. Before the year ended, a physical inventory count revealed that the 16th batch of lollipops produced was not shipped to its buyer. The sales was traced and it was found out that the buyer cancelled the order due to some emergency. Lena Lollipops plans to dispose of the lollipops since they cannot be sold anymore. Tahanang Walang Hangganan (TWH) offers to purchase the batch. What is the minimum price at which Lena would still accept TWH's offer?