Question

Assume that General Dynamics, which manufactures high-technology instruments for spacecraft, is considering the sale of a navigational unit to a government agency in India that wishes to launch its own communications satellite. The government agency plans to purchase 8 units, although it would also consider buying 16 units. General Dynamics has started a chart relating labor time required to units produced. Unit Produced (X) Time Required to Produce the Xth Unit 10,000 hours 5,000 hours 2,500 hours NT Required: a. Compute the labor time required to produce 8 and 16 units. (Round your answers to the nearest whole number.) Time Required to produce 8th unit Time Required to produce 16th unit hours hours b. Assume that labor time costs $120 per hour. Compare the cost of producing the 1st unit to the cost of producing the 16th unit. What is the percentage of the cost of the 16th unit to the cost of the 1st unit? (Do not round your intermediate calculations. Enter your answer as a percentage rounded to 2 decimal places (i.e., 32.21)) Percentage of cost of 16th unit to 1st unit cost

Answer 1

a.
In the given case learning curve is 50%, that is as units produced are doubled the labor hours required to produce double units is 50% of the previous units produced.
Time required to produced 8th unit	1250	2500*50%
Time required to produced 16th unit	625	1250*50%
b.
Cost of producing 1 unit	$1,200,000	10,000*$120
Cost of producing 16th unit	$75,000	625*120
Percentage of cost of 16th unit to 1st unit cost	6.25%	75000/1200000