If unit 1 requires 200 hours to produce and the labor records for an Air Force contract of 50 units indicates an average labor content of 63.1 hours per unit (see attached file).
a) What was the learning rate?
b) What total additional number of labor-hours would be required for a follow on Air Force contract of 50 units?
c) What would be the average labor content of this second contract?
d) Of both contracts combined? If labor costs the vendor $10/hour on this second contract and the price to the Air Force is fixed at $550 each.
e) What can you say about the profitability of the first and second contract, and hence the bidding process in general?
The solution calculates learning rate, labor hours and labor costs (see Excel attachment for full details).