Question

Lambda computer products competed for and won a contract to produce two prototype units of a new type of computer that is based on laser optics rather than on electronic binary bits. the company expects "learning" to occur relative to labor and also relative to the pricing of materials, equipment and supplies. the first unit produced by lambda took 5,000 hours to produce and required $250,000 worth of material, equipment usage, and supplies. the second unit took 3,500 hours and used $200,000 worth of materials, equipment usage, and supplies. labor is $30 per hour. use exhibit 6.5.
a. lambda was asked to present a bid for 10 additional units as soon as the second unit was completed. production would start immediately. what would this bid be? cost for 10 more units $

Answer 1

Answer:

$1,780,755

Explanation:

first unit produced by lambda took 5,000 hours to produce and required $250,000 worth of material, equipment usage, and supplies

the second unit took 3,500 hours and used $200,000 worth of materials, equipment usage, and supplies

learning rate = time needed to produce second unit / time needed to produce first unit = 3,500 hours / 5,000 hours = 70%

materials and equipment usage rate = $200,000 / $250,000 = 80%

using the attached table of cumulative values, we can determine the cumulative improvement factors needed to solve this question:

Lambda's accumulated cost for producing 10 more computers

• work hours = 3,500 x 4.931 (70% and 10 units) x $30 per hour = $517,755
• materials and equipment = $200,000 x 6.315 (80% and 10 units) = $1,263,000
• total = $517,755 + $1,263,000 = $1,780,755