Lambda Computer Products competed for and won a contract to produce two prototyp
ID: 416313 • Letter: L
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 4,250 hours and used $237,500 worth of materials, equipment usage, and supplies. Labor is $20 per hour.
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?
Explanation / Answer
We will use Learning curve table to solve the problem
To be noted that Learning rate is applicable on both labour hours as well as materials used
Cost of labour :
Learning rate = Time to produce 2nd unit/ Time to produce 1st unit = 4250/5000 x 100 = 85%
As per Learning curve table for learning rate of 85%,
Total time required to produce first 12 units = 41222 hour
Total time required to produce first 2 units = 5000 + 4250 = 9250 hours
Therefore, total time required to produce 10 additional units ( i.e. from 3rd to 12th unit ) = 41222 – 9250 = 31972 hours
Thus total labour cost ( @ $ 20 / hour ) to produce 10 additional units = $ 20 x 31972 = $639440
Cost of Materials, equipment and supply :
Learning rate = Cost incurred for 2nd unit/ Cost incurred for 1st unit x 100 = 237,500/ 250,000 x 100 = 95%
As per Learning Curve Table for learning rate of 95%,
Total cost incurred to produce first 12 units = $2655983
Total cost incurred to produce first 2 units = $250,000 + $237,500 = $487,500
Thus total cost incurred to produce additional 10 units ( from 3rd to 12th unit ) = $2655983 - $487500 = $2168483
Therefore,
Total cost which should be considered for bidding purpose for 10 additional units
= Total labour cost + Total cost of material, equipment and supplies
= $639440 + $2168483
= $2807923
BID VALUE = $2807923
BID VALUE = $2807923
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