Jack Simpson, contract negotiator for Nebula Airframe Company, is currently involved in bidding on a follow-up government contract. In gathering cost data from the first three units, which Nebula produced under a research and development contract, he found that the first unit took 2,500 labor hours, the second took 2,250 labor hours, and the third took 2,120 hours. Use Exhibit 6.5. In a contract for three more units, how many labor hours should Simpson plan for

5,882.5‬ hours

Explanation:

Cumulative Labor Hours to be planned for = Cumulative factor * Time of first unit

Cumulative Factor = Average learning rate for Number of units.

Learning rate from unit 1 to 2 = Labor hours required for 2nd unit / Labor Units required for 1st unit

= 2,250/2,500

= 0.9

Learning rate from unit 2 to 3 = Labor hours required for 3rd unit / Labor Units required for 2nd unit

= 2,120/2,250

= 0.94

Average learning rate = (0.9 + 0.94) / 2

= 0.9

= 90%

There are 6 units in total including the first units checked and the additional 3 units.

Cumulative factor for 6 units at 90% from the table is 5.101.

Cumulative labor hours = 5.101 * 2,500

= 12,752.5‬ hours

The time for the Addiotnal 3 units is;

= Cumulative time for all units - time for the first 3 units

= 12,752.5 - 2,500 - 2,250 - 2,120

= 5,882.5‬ hours

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