Johnson Industries received a contract to develop and produce four high-intensit

Question

Johnson Industries received a contract to develop and produce four high-intensity long-distance receiver/transmitters for cellular telephones. The first took 2,600 labor hours and $44,000 worth of purchased and manufactured parts, the second took 2,110 labor hours and $40,040 in parts, the third took 1,890 labor hours and $37,840 in parts, and the fourth took 1,667 labor hours and $35,640 in parts. Johnson was asked to bid on a follow-on contract for another dozen receiver/transmitter units. (Hint: There are two learning curves-one for labor and one for parts.) Use Exhibit 6.5. a. How many labor hours should Johnson estimate are needed for the additional 12 units? (Round your answer to the nearest whole number.) Estimated labor hours b. How much should Johnson estimate the parts cost will be for the additional 12 units? (Round your answer to the nearest dollar amount.) Estimated parts cost

Explanation / Answer

Ans a)

Labor hours for the first unit = 2600

Labor hours for the second unit = 2110

Labor hours for the third unit = 1890

Labor hours for the fourth unit = 1667

Learning rate from unit 1 to 2 = 2110 / 2600 = 81%

Learning rate from unit 2 to 4 = 1667 / 2110 = 79%

Average learning rate = (81 + 79) / 2 = 80%

The cumulative improvement factor for 4 units at 80% learning rate = 3.142

The cumulative improvement factor for (4 + 12) = 16 units at 80% learning rate = 8.92

The number of labor hours for additional 12 units = (8.92 - 3.142) * Labor hours for first unit

= 15023 hours

Ans b)

Part cost for the first unit = $44,000

Part cost for the second unit = $40,040

Part cost for the third unit = $37,840

Part cost for the fourth unit = $35,640

Learning rate from unit 1 to 2 = 40040 / 44000= 91%

Learning rate from unit 2 to 4 = 35640 / 40040= 89%

Average learning rate = (91 + 89) / 2 = 90%

The cumulative improvement factor for 4 units at 90% learning rate = 3.556

The cumulative improvement factor for (4 + 12) = 16 units at 90% learning rate = 12.04

The part cost for the additional 12 units = (12.04 - 3.556) * Part cost for the the first unit

= $373,296

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