Your firm designs PowerPoint slides for computer training classes, and you have

Question

Your firm designs PowerPoint slides for computer training classes, and you have just received a request to bid a contract to produce the slides for an 8-session class. From previous experience, you know that your firm follows an 85 percent learning rate. For this contract it appears the effort will be substantial, running 50 hours for the first session. Your firm bills at the rate of $100.00 per hour and the overhead is expected to run a fixed $600 per session. The customer will pay you a flat fixed rate per session. If your nominal profit margin is 20 percent, what will be the total bid price, the per session price and at what session will you break even?

Explanation / Answer

To calculate the total bidding price we need to first calculate the total cost of 8 sessions. For finding the total cost we need to find the total hours to be taken for 8 sessions. Now we know that the learning rate is 85% and the first session took 50 hours hence we can refer to the learning curve table E3 for the coefficient of 8 under 85% and multiply it with the time taken for the first session. The result will be total time taken cumulatively for 8 sessions with a 85% learning curve.

Total time taken for 8 sessions = 50 x 5.936 (coefficient of 8 under 85% learning rate) = 296.8 = 297 hrs

Fixed cost = 600 x 8 = $4800

Variable cost = 100 x 297 = $29700

Total Cost = 29700 + 4800 = $34500

Total bid price = 34500 x 1.2 = $41400 (adding 20% profit margin on cost)

Price per session = 41400 / 8 = $5175

Break Even Session = 34500 / 5175 = 6.67 hence the total cost will be covered by the 7th session.

Related Questions

Navigate

• Browse (All)
• Browse Y
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.