Markham, Inc. has received a contract for 8 units of a new product. The contract is a cost-plus contract, with the total to be received equal to the total labor cost + 30%. Markham found that the first unit of a new product required 90 hours to complete. The second unit was completed using only 76.5 hours. Markham believes that the rate of learning that was observed will continue for all 8 units of the contract. The labor wage paid is $40/hour. The following factors are available for various rates of learning: 80% learning, b = ?0.3219; 85%, b = ?0.2345; 90%, b = ?0.1520; 95%, b = ?0.0740.Required:(a.) What will the total labor cost be for the contract?f(b.) What will be the total fee for the contract?
What will be an ideal response?
(a.)
The learning rate is 76.5 hrs/90 hrs = 85% learning rate.
| Units Produced | Marginal Labor Time | Cumulative Labor Time |
| 1(90 × 1-0.2345) | 90.00 | 90.00 |
| 2(90 × 2-0.2345) | 76.50 | 166.50 |
| 3(90 × 3-0.2345) | 69.56 | 236.06 |
| 4(90 × 4-0.2345) | 65.02 | 301.08 |
| 5(90 × 5-0.2345) | 61.71 | 362.79 |
| 6(90 × 6-0.2345) | 59.12 | 421.91 |
| 7(90 × 7-0.2345) | 57.03 | 478.94 |
| 8(90 × 8-0.2345) | 55.27 | 534.21 |
(b.)
$21,368.40 × 130% = $27,778.92
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