Assume that General Dynamics, which manufactures high-technology instruments for

Question

Assume that General Dynamics, which manufactures high-technology instruments for spacecraft, is considering the sale of a navigational unit to a government agency in India that wishes to launch its own communications satellite. The government agency plans to purchase 8 units, although it would also consider buying 16 units. General Dynamics has started a chart relating labor time required to units produced. Unit Produced (X) Time Required to Produce the Xth Unit 1 25,000 hours 2 20,000 hours 4 16,000 hours 8 ? 16 ? Required: a. Compute the labor time required to produce 8 and 16 units. (Round your answers to the nearest whole number.) b. Assume that labor time costs $120 per hour. Compare the cost of producing the 1st unit to the cost of producing the 16th unit. What is the percentage of the cost of the 16th unit to the cost of the 1st unit? (Do not round your intermediate calculations. Enter your answer as a percentage rounded to 2 decimal places (i.e., 32.21))

Explanation / Answer

SOLUTION

1. The learning rate is 80% for every doubling of output. (20,000/25,000=80%)

2. Cost of producing 1st unit = 25,000 * $120 = $3,000,000

Cost of producing 16th unit = 10,240 * $120 = $1,228,800

Percentage of the cost of the 16th unit to the cost of the 1st unit = 40.96% ($1,228,800/$3,000,000)

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