Lambda Computer Products competed for and won a contract to produce two prototype units of a new type of computer that is based on laser optics rather than on electronic binary bits. The first unit produced by Lambda took 5,000 hours to produce and required $250,000 worth of material, equipment usage, and supplies. The second unit took 3,500 hours and used $200,000 worth of material, equipment usage, and supplies. Labor is $30 per hour. (a) Lambda was asked to present a bid for 10 additional units as soon as the second unit was completed. Production would start immediately. What would this bid be

A. $1,926,900

B. $2,318,400

Explanation:

(a) Calculation for What would this bid be

TOTAL LABOR COST

First step is to calculate the LR for Total labor cost

LR = 3500/5000

LR = 70%

Second step is to calculate the cumulative factor using cumulative table

12 units cumulative factor frelated to labor

=5.501

2 units cumulative factor frelated to labor = 1.700

Hence,

Cumulative factor = 5.501 – 1.700

Cumulative factor = 3.801

Third step is to calculate the Labor cost for 10 more units

Labor cost for 10 more units = 5,000(3.801)(30)

Labor cost for 10 more units = $570,150

MATERIAL

First step is to calculate the LR for Material:

LR = 200000/250000

LR= 80%

Second step is to calculate Cumulative factor

12 Units cumulative factor in case of material = 7.227

2 units cumulative factor in case of material = 1.800

Hence,

Cumulative factor = 7.227 – 1.800

Cumulative factor = 5.427

Third step is to calculate Total cost fo material for additional 10 units

Total cost fo material for additional 10 units = 250,000(5.427)

Total cost fo material for additional 10 units= $1,356,750

Now let calculate What would this bid be

Total cost = $570,150 + $1,356,750

Total cost = $1,926,900

Therefore the bid will be for $1,926,900

b. Calculation for What would be the total production costs for the additional 10 units

First step is to calculate Labor cost

Labor cost Cumulative factor using Cumulative tables =4.931

Labor cost = 4.931*(5,000)*(30)

Labor cost =$739,650

Second step is to calculate the material cost

material cost Cumulative factor using cumulative table 6.315

Material cost = 6.315*($250,000)

Material cost=$1,578,750

Now let calculate the Total cost

Total cost=$739,650+$1,578,750

Total cost= $2,318,400

Therefore What would be the total production costs for the additional 10 units is $2,318,400