NSDC has a contract to produce 9 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 9 units. NSDC has estimated that the R&D costs will be NOK (Norwegian Krone) 12,000,000. Material costs are expected to be NOK 6,000,000. They have estimated the design and production of the first satellite will require 100,000 labor hours and an 80 percent improvement curve is expected. Skilled labor cost is NOK 300 per hour. Desired profit for all projects is 25 percent of total costs. A. How many labor hours should the eighth satellite require?
B. How many labor hours for the whole project of eight satellites?
C. What price would you ask for the project? Why?
D. Midway through the project your design and production people realize that a 75 percent improvement curve is more appropriate. What impact does this have on the project?
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 price will you quote them? Justify your price.

we have the following information:

R&D = NOK  12000000

Materials = 6000000

Labour hours = 100000

Improvement curve = 80%

Skilled labour = 300/hour

Desired profit = 25%

a. Number of hours:

Using the learning curves table, the value for 80%  in the 8th unit is = 0.5120

therefore the number of learning hours = 100000 x 0.5120

= 51200 hours

the eight satellite would need 51200 hours of labor

b. The labour hours for the whole project of 8

The corresponding value using the learning curves cumulative value table = 5.346

so the labour hours = 100000*5.346

= 534600 hours

The whole project requires 534600 hours.

c. Price for the project

We first find the total cost of the project

Total cost of labor = required hours x cost of labor

= 534600 x NOK300

= 160380000

Then we find the margin of profit

25% x total cost

25% (160380000 + 12000000 + 6000000)

= 178380000 x 0.25

= 44595000

The proposed price would be

44595000+160380000+12000000+6000000

= 222,975,000 NOK

the total price is 222,975,000 NOK. This is the price I would ask for.

D. a 75% rate is = 4.802 at 8 units in the cumulative values table.

Total hours = 100000x4.802

= 480200 hours

Total hours = 480200x 300

= 144060000

profit margin = 25% (144060000x6000000x12000000)

= 40515000

The impact that this has is that the profit margin has now fallen from 44595000 Nok to 40515000 NOK

E.

To build these satellites NSDC had 6million NOK

6million/2 = 3000000

4 units at 80 percent in the learning curve = 3.142

100000x3.142 = 314200 hours

Total cost of labor = 314200 hours x 300

= 94260000 NOK

Profit margin = 25% x 94260000 x 12000000 x 3000000

= 27315000 NOK

The justified price that i would quote them = 27315000+94260000+3000000+12000000

= 136575000 NOK

This is the proposed price for the 4

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