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Calculating Bids and Learning Curve

Lambda Computer Products competed for and won a contract to produce two prototype units of a new type of computer that is based on optics using lasers rather than on electronic binary bits. The first unit produced by Lambda took 5,000 hours to produce and required $250,000 worth of materials, equipment usage and supplies. The second unit took 3,500 hours and used $200,000 worth of materials, equipment usage and supplies. Labor is $30.00 per hour.

You were asked by your customer to present a bid for 10 additional units as soon as the second unit was completed. Production would start immediately. What would your bid be?

Solution Preview

Please refer attached file for proper formatting.
Please refer A47 cell in attached file. "Total labor cost" should be read as "Total material and other costs"

Learning rate of labor=3500/5000=70.00%
Learning rate for materials, equipment usage and supplies=200000/250000=80.00%

First we, calculate time needed to manufacture ten units (number 3 to 12)

Slope of learning curve=ln(learning rate)/ln(2)=c=-0.514573173

Unit # ...

Solution Summary

Solution calculates the bid amount by using the given information.