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This is the cost for the first unit multiplied by .70. That is not the correct way to find the average cost per unit using the cumulative average-time learning model. One way to find the average cost per unit using the cumulative average-time learning model is to multiply the cost for the first unit by the learning curve rate raised to the appropriate exponent for the number of times doubling will occur.
This answer is not possible. If the average cost per unit for 8 units were $1,647, the total cost for 8 units would be $1,647 × 8, which is $13,176. $13,176 is less than the cost to produce the first unit. One way to find the average cost per unit using the cumulative average-time learning model is to multiply the cost for the first unit by the learning curve rate raised to the appropriate exponent for the number of times doubling will occur.
This is the average cost per unit for the first two units multiplied by .70. That is not the correct way to find the average cost per unit using the cumulative average-time learning model. One way to find the average cost per unit using the cumulative average-time learning model is to multiply the cost for the first unit by the learning curve rate raised to the appropriate exponent for the number of times doubling will occur.
The quickest way to find the average cost per unit using the cumulative average-time learning model is to multiply the cost for the first unit by the learning curve rate raised to the appropriate exponent for the number of times doubling will occur. For eight units, doubling will occur three times (from 1 unit to 2 units; from 2 units to 4 units; and from 4 units to 8 units). $20,000 × .73 = $6,860. Another way to calculate it would be to calculate the total cost for 8 units and divide that by 8 to find the average cost per unit. The total cost for 8 units is: $20,000 (2 × .7)3 = $54,880. $54,880 ÷ 8 = $6,860.