Chapter 10, Problem 10.40P

Cost estimation, cumulative average-time learning curve. The Pacific Boat Company, which is under contract to the U S. Navy, assembles troop deployment boats. As part of its research program, it completes the assembly of the first of a new model (PT109) of deployment boats. The Navy is impressed with the PT109. It requests that Pacific Boat submit a proposal on the cost of producing another six PT109s. Pacific Boat reports the following cost information for the first PT109 assembled and uses a 90% cumulative average-time learning model as a basis for forecasting direct manufacturing labor-hours for the next six PT109s. (A 90% learning curve means b = −0.152004.)

1. 1. Calculate predicted total costs of producing the six PT109s for the Navy. (Pacific Boat will keep the first deployment boat assembled, costed at $1,477,600, as a demonstration model for potential customers.)

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1. 2. What is the dollar amount of the difference between (a) the predicted total costs for producing the six PT109s in requirement 1 and (b) the predicted total costs for producing the six PT109s, assuming that there is no learning curve for direct manufacturing labor? That is, for (b) assume a linear function for units produced and direct manufacturing labor-hours.