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.

a. 51,200

b. NOK 160,380,000)

c. 222,975,000

d. 16,320,000

e. 60,487,500

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