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Chapter 1: Q10OQ (page 144)

United Research Associates (URA) had received a contract to produce two units of a new cruise missile guidance control. The first unit took 4,000 hours to complete and cost \(30,000 in materials and equipment usage. The second took 3,200 hours and cost \)21,000 in materials and equipment usage. Labor cost is charged at $18 per hour.

The prime contractor has now approached URA and asked to submit a bid for the cost of producing another 20 guidance controls.

a. What will the last unit cost to build?

b. What will be the average time for the 20 missile guidance controls?

c.What will the average cost be for guidance control for the 20 in the contract?

Short Answer

Expert verified

a) The production of the last unit will cost $32732.4

b) The average time for the 20 missile guidance controls will be 186 hours.

c) The average cost for guidance control for the 20 in the contract will be $43126.5

Step by step solution

01

Learning curve rate

Given the material cost of producing Unit 1 as $30000

The time is taken as 4000 hours

For Unit 2, the material cost is $21000

The time taken is 3200 hours

The labor cost is $18 per hour

So, the total labor cost of producing unit 1 is:

= $18 x 4000

= $72000

The total labor cost for producing Unit 2 will be:

= $18 x 3200

= $57600

The learning curve rate will be:

In hours = time taken to produce unit 2/time taken to produce unit 1

= 3200/4000

= 0.8

In materials = material cost to produce unit 2/material cost to produce to unit 1

= $21000/$30000

= 0.7

02

Cost of producing the last unit

From exhibit 6.4, the learning curve rate is 80% in hours and 70% in materials, and the value of 80% for 22 units is 0.3697, and for 70%, it is 0.2038.

Value of 80% at 22 units = 0.3697

Value of 70% at 22 units = 0.2038

The hours used in producing the 22nd unit:

0.3697 x 4000 = 1478.8

The labor cost for 22nd unit will be:

= value at 80%*labor cost

= 1478.8 x 18

= $26618.4

Material cost for 22nd unit is $6114:

= value at 70% x 30000

= 0.2038 x 30000

= $6114

It makes the total cost for the last unit, i.e., the 22nd unit, as:

= $26618.4+$6114

= $32732.4

Thus, the total cost incurred for producing the last unit will be $32732.4

03

Average time for 20 units

From exhibit 6.5, the cumulative improvement factor at 80% learning percentage for 22 units = 11.23

The time for the first 22 units will be 44920 hours, as follows:

= cumulative improvement factor*time taken for unit 1

= 11.23 x 4000

= 44920 hours

Time taken for 20 units will be 37720, i.e.:

= time is taken for 22 units 鈥� time taken for unit 1 鈥� time taken for unit 2

= 44920 鈥� 4000 鈥� 3200

= 37720 hours

The average time taken for 20 units will be 1886 hours, as:

= time taken for 20 units/20

= 37720/20

= 1886 hours

Thus the average time taken by 20 units is 1886 hours.

04

Average total cost

The average labor cost of producing 20 units will be $3398:

= average time taken by 20 units*labor cost

= 1886 x 18

= $33948

From exhibit 6.5, the value of cumulative improvement factor at 70% learning percentage for 20 units = 7.819

The material cost for producing 22 units is $234570:

= Material cost of producing unit 1*value of cumulative improvement

= 30000 x 7.819

= $2354570

Then the material cost for 20 units will be $183570, since:

= material cost of producing 22 units 鈥� the material cost of producing unit 1 - the material cost of producing unit 2

= 234570 - 30000 -21000

= $183570

The average material cost of 20 units will be:

= material cost of 20 units/20 units

= 183570/20

= $9178.50

The average total cost will be:

= average labor cost + average material cost

= 33948+9178.5

= 43126.5

Hence, the average total cost is $43126.5

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Most popular questions from this chapter

Question: An electronics company makes communications devices for military contracts. The company just completed two contracts. The navy contract was for 2,300 devices and took 25 workers two weeks (40 hours per week) to complete. The army contract was for 5,500 devices that 35 workers produced in three weeks. On which contract were the workers more productive?

Question: What are the two main competitive dimensions related to product delivery?

Question: Bragg鈥檚 Bakery is building a new automated bakery in downtown Sandusky. Here are the activities that need to be completed to get the new bakery built and the equipment installed.

a. Draw the project diagram.

b. What is the normal project length?

c. What is the project length if all activities are crashed to their minimum?

d. Bragg鈥檚 loses \(3,500 in profit per week for every week the bakery is not completed.

How many weeks will the project take if we are willing to pay to crash cost as long as it is less than \)3,500?

The following activities are part of a project to be scheduled using CPM:

Activity

Immediate Predecessor

Time (Weeks)

A

_

6

B

A

3

C

A

7

D

C

2

E

B,D

4

F

D

3

G

E,F

7

Your project to obtain charitable donations is now 30 days into a planned 40-day project. The project is divided into 3 activities. The first activity is designed to solicit individual donations. It is scheduled to run the first 25 days of the project and bring in \(25,000. Even though we are 30 days into the project, we still see that we have only 90 percent of this activity completed. The second activity relates to company donations and is scheduled to run for 30 days starting on day 5 and extending through day 35. We estimate that, even though we should have 83 percent (25y30) of this activity complete, it is only 50 percent complete. This part of the project was scheduled to bring in \)150,000 in donations. The final activity is for matching funds. This activity is scheduled to run for the last 10 days of the project and has not started. It is scheduled to bring in an additional \(50,000. So far \)175,000 has been brought in on the project. Calculate the schedule variance, schedule performance index, and cost (actually value in this case) performance index. How is the project going? Hint: Note that this problem is different since revenue rather than cost is the relevant measure. Use care in how the measures are interpreted.
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