You are an experienced machinist with a small tool shop. You have been asked to submit a bid to produce 15 special clamps for a new die that is under construction. You estimate that the material costs (metal & fasteners) for each clamp are $140. You also estimate that 10 labor hours are needed to produce the first clamp. The value of your labor is $50/hour. From similar orders in the past, you estimate that there is an 85% learning curve for this type of work.
a. What is the lowest total bid you should submit if you charge a 10% markup on material and you wish to recoup your labor costs?
b. Your potential customer is receptive to you bid from part a, but is hesitant to award you the order because the average cost per clamp that you bid 5% higher than his target. You respond to the customer that if they would increase their order from 15 clamps to x clamps, you could beat his target price. What is x?