NSDC has a contract to produce eight 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 ten units. NSDC has estimated that the R&D costs will be $12,000,000. Material costs are expected to be $ 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 $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 Hawaiian Telcom has requested a cost estimate for four satellites identical to those you have already produced. What price will you quote them? Justify your price.