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. Time Required to Unit Produce Produced (x) the Xth Unit 13,000 hours 7,800 hours 4 4,680 hours 8 1 2 16 2 2 5 Required: a. Compute the labor time required to produce 8 and 16 units b. Assume that labor time costs $130 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 ist unit? Complete this question by entering your answers in the tabs below. Required A Required B Compute the labor time required to produce 8 and 16 units. (Round your answers to the nearest whole number.) hours Time required to produce 8th unit Time required to produce 16th unit hours Required B

Answer 1

a)

Time required to produce 8th unit 2,808 hours

Time required to produce 16th unit 1,685 hours

The learning rate is 60% for every doubling of output:

Unit Produced(X)    Time Required toProduce the Xth Unit

1 13,000 hours

2 7,800 hours(= 13,000 hours × 0.60)

4 4,680 hours(= 7,800 hours × 0.60)

8 2,808 hours(= 4,680 hours × 0.60)

16 1,684.8 hours(= 2,808 hours × 0.60)

______

b)

Cost of producing the 1st unit = $1,690,000 (= 13,000 hours × $130 per hour)

Cost of producing the 16th unit = $219,024 (= 1,684.8 hours × $130 per hour)

= 12.96% of the 1st unit cost (= $219,024 ÷ $1,690,000)