Unit Research Associates (URA) received a contract to produce fifteen units of a new cruise missile guidance control. The first unit took 7500 hours to complete and cost $350,000 in materials and equipment usage. The second took 6500 hours and cost $235,500 in materials and equipment usage. For bidding purposes, labor cost is assumed to be $20/hour and an overhead rate of 20% added to materials and equipment costs. Finally, the URA seeks a profit margin of 30% on orders. Initial bids are usually computed as the sum of labor, material and equipment, overhead, and profit. The prime contractor is now asking URA to submit a bit for an additional 25 guidance controls.
a. What will the last unit cost to build?
b. What is the estimated average time for the 25 new units?
c. What is the total bid for the 25 new units and what would be the per unit price?
d. The contractor was very happy with the price of the 15 prototype units (calculated using the average selling price of the first 15 units) provided and is accustomed to receiving a 15% discount for “large orders,” those over 20 units. Based on this status quo, what bid would you recommend and how much profit do you expect the company to make?