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 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 3,250 hours and used $187,500 worth of materials, equipment usage, and supplies. Labor is $20 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

Answer 1

Answer:

$1,330,102.50

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 3,250 hours and used $187,500 worth of materials, equipment usage, and supplies

learning rate = time needed to produce second unit / time needed to produce first unit = 3,250 hours / 5,000 hours = 65%

materials and equipment usage rate = $187,500 / $250,000 = 75%

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 = 3,250 x 4.341 (65% and 10 units) x $20 per hour = $282,165
• materials and equipment = $187,500 x 5.589 (75% and 10 units) = $1,047,937.50
• total = $282,165 + $1,047,937.50 = $1,330,102.50