Question

NSDC has a contract to produce eight satellites to support a worldwide telephone system (for Alaska Telecom, Inc.) that allows individuals to use a single, portable telephone in any location on earth to call in and out. NSDC will develop and produce the eight units. NSDC has estimated that the R&D costs will be NOK (Norwegian Krone) 12,000,000. Material costs are expected to be NOK 6,000,000. They have estimated the design and production of the first satellite will require 100,000 labor hours and an Page 160Page 16180 percent improvement curve is expected. Skilled labor cost is NOK 300 per hour. Desired profit for all projects is 25 percent of total costs. How many labor hours should the eighth satellite require? How many labor hours for the whole project of eight satellites? What price would you ask for the project? Why? Midway through the project your design and production people realize that a 75 percent improvement curve is more appropriate. What impact does this have on the project? Near the end of the project, Deutsch Telefon AG has requested a cost estimate for four satellites identical to those you have already produced. What price will you quote them? Justify your price.

Answer 1

To calculate the labor hours for the eighth satellite, we use the formula based on the improvement curve. The initial 80% learning rate is used to estimate labor hours, with adjustments made for the new 75% curve. The pricing for the project adds a 25% profit on top of all total costs, which include R&D, materials, and labor.

Step-by-step explanation:

The question pertains to calculating labor hours and pricing for the production of satellites using an improvement curve model, which is a concept from operations management in business. The initial estimate states that the first satellite will require 100,000 labor hours at a cost of >NOK 300 per hour, with an expected 80% improvement curve. However, it is later determined that a 75% improvement curve is more accurate.

To calculate the labor hours required for the eighth satellite, we use the formula L(x) = L(1)x^(log b/log 2), where L(x) is the labor hours for the xth unit, L(1) is the labor hours for the first unit, x is the unit number, and b is the learning rate (0.80 for the 80% curve, adjusted to 0.75 later). For the eighth unit, assuming the initial 80% learning curve, the labor hours required would be: L(8) = 100,000*8^(log 0.8/log 2). The calculation for the total labor hours for all eight satellites requires the sum of the geometric series of labor hours for each satellite.

The price for the project would include total costs plus a 25% profit margin. The total costs comprise R&D costs, material costs, and total labor costs (total labor hours * skilled labor cost per hour). With the later realization of a 75% improvement curve, the labor hours for subsequent satellites would increase, thus impacting the project cost and the price adjustment for the contract with Deutsch Telefon AG for four additional satellites would need to reflect the new learning curve.

Answer 2

a. 51,200

b. NOK 160,380,000)

c. 222,975,000

d. 16,320,000

e. 60,487,500

Step-by-step explanation:

A. How many labor hours should the eighth satellite require? 100,000 labor hours x .512 = 51,200 labor hours for the 8thunit

B. How many labor hours for the whole project of eight satellites? 100,000 labor hours for 1stunit x 5.346 = 534,600 total for 8 units (534,600 hours x NOK 300 = NOK 160,380,000)

C. What price would you ask for the project? Why? Labor (534,600 hrs x NOK 300) = NOK 160,380,000R&D = NOK 12,000,000Material = NOK 6,000,000Total = NOK 178,380,000 x 1.25 profit NOK 222,975,000

D. Midway through the project your design and production people realize that a 75 percent improvement curve is more appropriate. What impact does this have on the project? 80% improvement = 534,600 labor hours 75% improvement = 480,200 labor hours Difference = 54,400 labor hours x NOK 300 = NOK 16,320,000

E. Near the end of the project Deutsch Telefon AG has requested a cost estimate for four satellites identical to those you have already produced. What price will you quote them? Justify your price. 12 units= 100,000 lhrs for first unit x 6.315 (75%)=631,500 lhrsFirst 8 units= 100,000 x 4.802 (75%) =480,200 lhrsDifference=151,300 lhrsAdditional 4 units= 151,300 lhrs x NOK 300 =NOK 45,390,0001/2 material of 6,000,000 =NOK 3,000,000Total direct costs=NOK 48,390,0001.25 profit=NOK 60,487,500