Jack Simpson, contract negotiator for Nebula Airframe Company, is currently invo

Question

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 2,000 labor hours, the second took 1,500 labor hours, and the third took 1,410 hours. Use Exhibit 6.5 In a contract for three more units, how many labor hours should Simpson plan for? (Round your answer to the nearest whole number.) Number of labor hours

Explanation / Answer

Labor hours for the first unit = 2000

Labor hours for the second unit = 1500

Labor hours for the third unit = 1410

Learning rate = 1500 / 2000 = 75%

The cumulative improvement factor for 3 units at 75% learning rate = 2.384

The cumulative improvement factor for (3 + 3) = 6 units at 75% learning rate = 3.934

The number of labor hours for additional 3 units = (3.934- 2.384) * Labor hours for first unit

= 3100 hours

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