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Chapter 1: Question 4-9PE (page 108)
The procedure used to reduce project completion time by trading off time versus cost.
Project crashing is a technique for decreasing project length by decreasing the timing of one or even more essential project tasks to less than the standard task period.
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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?
Johnson Industries received a contract to develop and produce four high-intensity long-distance receiver/transmitters for cellular telephones. The first took 2,000 labor hours and \(39,000 worth of purchased and manufactured parts; the second took 1,500 labor hours and \)37,050 in parts; the third took 1,450 labor hours and \(31,000 in parts, and the fourth took 1,275 labor hours and \)31,492 in parts. Johnson was asked to bid on a follow-on contract for another dozen receiver/transmitter units. Ignoring any forgetting factor effects, what should Johnson estimate time and parts costs to be for the dozen units? (Hint: There are two learning curves鈥攐ne for laborand one for parts.)
Perot Corporation is developing a new CPU chip based on a new type of technology. Its new chip, the Patay2 chip, will take two years to develop. However, because other chip manufacturers will be able to copy the technology, it will have a market life of two years after it is introduced. Perot expects to be able to price the chip higher in the first year, and it anticipates a significant production cost reduction after the first year as well. The relevant information for developing and selling the Patay2 is given below
Patay2 Chip Product Estimates
Patay2 Chip Project Timing
a. What are this project's yearly cash flows and their present value (discounted at 10 percent)? What is the net present value?
b. Perot鈥檚 engineers have determined that spending \(10 million more on developmentwill allow them to add even more advanced features. Having a more advanced chipwill allow them to price the chip \)50 higher in both years (\(870 for year 1 and \)700for year 2). Is it worth the additional investment?
c. c. If sales are only 200,000 the first year and 100,000 the second year, would Perot stilldo the project?
Now, look at the effect of increasing the number of beds by 50 percent. How many operations could the hospital perform per day before running out of bed capacity? (Assume operations are performed five days per week, with the same number performed on each day.) How well would the new resources be utilized relative to the current operation? Could the hospital perform this many operations? Why?
Firm A typically sees a learning percentage of 85 percent in its processes. Firm B has a learning percentage of 80 percent. Which firm has the faster learning rate?
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