Learning Curve Assignment A defence contractor is bidding on a military contract

Question

Learning Curve Assignment

A defence contractor is bidding on a military contract for 100 radar units. The contractor employs 30 machine operators who work 165 hours a month each. The first radar unit required 1145 operator hours, and the learning curve for this type of work is known to be 75 percent. It takes a month to order and receive raw material components, which cost $500 per radar unit. The material is then paid for in the month it is received. Fixed costs include a month to tool up, which costs $10,000 and then $5000 per month for every month of production. Direct labor and variable overhead are $8 per hour. The contractor can deliver only completed units and is paid the following month. Profit is set at 10 percent of the bid price. Find the bid price, derive the production schedule and calculate the cash flow schedule. Please use Spreadsheet (MS Excel). Parts of the solution shown below:

Explanation / Answer

Total Manufacturing cost for a month = 10000 + 5000 + 8 * (30 * 165) = 54600

Possible unit production in a month = 8

Total cost per unit = 54600 / 8 + 500 = 7325

Bid price = 7325 / .90 = 8138.89

Working note: Calculation of production units applying learning curve:

Units Hours consumed Hours remaining 0                               -                          4,950 1                        1,145                        3,805 2                        1,832                        3,118 4                        2,931                        2,019 8                        4,690                            260

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