Norwegian Satellite Development Company Cost Estimates for World Satellite Telep

Question

Norwegian Satellite Development Company Cost Estimates for World Satellite Telephone Exchange Project NSDC has a contract to produce 7 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 7 units. NSDC has estimated that the R&D costs will be NOK (Norwegian Krone) 12,000,000. Material costs are expected to be NOK 7,000,000. They have estimated the design and production of the first satellite will require 100,000 labor hours and a(n) 75 percent improvement curve is expected. Skilled labor cost is NOK 300 per hour. Desired profit for all projects is 20 percent of total costs.

A. How many labor hours should satellite number 7 require?

B. How many labor hours would be required for the whole project of 7 satellites?

C. What price would you ask for the project? (Round the final answer to the nearest NOK.)

D. Midway through the project your design and production people realize that a 70 percent improvement curve is more appropriate. What cost savings do you expect (neglect profit)? (Round the final answer to the nearest NOK.)

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 are your incremental costs (do not include profit)?

Explanation / Answer

A:- How many labor hours should satellite number 7 require?

For 75% improvement curve and for 7 units, the learning curve value will be=0.4459

Labor hours required = 100000*0.4459=44590 hours

B:- How many labor hours would be required for the whole project of 7 satellites?

Learning curve cumulative value for 75% improvement curve and for 7 units = 4.380

Thus 100000labou hours * 4.380 =438000 total for 7 units

C:- What price would you ask for the project?

Labor cost =438000*300 NOK = 131400000NOK

R&D costs will be NOK (Norwegian Krone) =12,000,000

Material costs NOK =7,000,000.

Total cost =150400000 NOK

Price =150400000 NOK*1.2 = 180480000NOK

D:- Midway through the project your design and production people realize that a 70 percent improvement curve is more appropriate

For 75% improvement =438000 total for 7 units

Learning curve cumulative value for 75% improvement curve and for 7 units = 3.96

For 70% improvement =100000labou hours * 3.96 =396000

Difference = (438000-396000)*300NOK =12600000NOK

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