Question

United Research Associates (URA) had received a contract to produce two units of a new cruise missile guidance control. The first unit took 4,000 hours to complete and cost $30,000 in materials and equipment usage. The second took 2,800 hours and cost $18,000 in materials and equipment usage. Labor cost is charged at $22 per hour. The prime contractor has now approached URA and asked to submit a bid for the cost of producing another 20 guidance controls. Use Exhibit 6.4 and Exhibit 6.5. a. What will the last unit cost to build? (Round your answer to the nearest dollar amount.) Cost of last unit b. What will be the average time for the 20 missile guidance controls? (Round your answer to the nearest whole number.) Average time hours c. What will the average cost be for guidance control for the 20 in the contract? (Round your answer to the nearest dollar amount.) Average cost

Answer 1

Learning curve of time = time taken by the second unit / time taken by first unit

=2800/4000 =70%

Learning curve of cost = cost incurred in making the second unit / time taken in making first unit

= 18000/30000 =0.6 =60%

a. Last unit cost to be built

C20 = C1 x ( 20)^b where b is a constant with a value of -0.737 for 60% LC, nad C1 is the cost of building first unit

C20 = 30000x ( 20)^-0.737 = 3298

b. Cumulative time for 20 units at 70% LC = 4000 x 7.407 = 29628

average = 29628 /20 = 1481.4 hours

c. cumulative cost of 20 missiles  at 60% LC = 5.167x30000 =155011

  average cost per unit = 155011 /20 = 7750.55