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. What was the learning rate? What total
additional number of labor-hours would be required for a follow-on Air Force contract of 50 units?
What would be the average labor content of this second contract? 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, what can you say about the profitability of the first and second contracts, and hence
the bidding process in general?

3. Your firm designs PowerPoint slides for computer training classes, and you have just received a request
to bid on a contract to produce the slides for an 8-session class. From previous experience, you know that
your firm follows an 85% learning rate. For this contract it appears the effort will be substantial, running
50 hours for the first session. Your firm bills at the rate of $100/hour and the overhead is expected to run a
fixed $600 per session. The customer will pay you a flat fixed rate per session. If your nominal
profitmargin is 20 percent, what will be the total bid price, the per session price, and at what

A manufacturing firm has set up a project for developing a new machine for one of its production lines. The
most likely estimated cost of the project itself is $1 million, but the most optimistic estimate is $900,000
while the pessimists predict a project cost of $1,200,000. The real problem is that even if the project costs
are within those limits, if the project itself plus its implementation cost exceed 1,425,000, the project will
not meet the firm’s NPV hurdle. There are four cost categories involved in adding the prospective new
machine to the production line: (1) engineering labor cost, (2) non-engineering labor cost, (3) assorted
materials cost, and (4) production line down-time cost.The engineering labor requirement has been
estimated to be 600 hours, plus or minus 15% at a cost of $80 per hour. The non-engineering labor
requirement is estimated to be 1500 hrs., but could be as low as 1200 hrs. or as high as 2200 hrs. at a cost
of $35 per hour. Assorted material may run as high as $155,000 or as low as $100,000 but is most likely
to be about $135,000. The best guess of time lost on the production line is 110 hours, possibly as low as
105 hours and as high as 120 hours. The line contributes about $500 per hour to the firms profit and
overhead. What is the probability that the new machine project will meet the firm’s NPV hurdle?