Posted on by Judy

Lazer Technologies Inc. (LTI) has produced a total of 20 high-power laser systems that could be used to destroy any approaching enemy missiles or aircraft. The 20 units have been produced, funded in part as private research within the research and development arm of LTI, but the bulk of the funding came from a contract with the U.S. Department of Defense (DoD). Testing of the laser units has shown that they are effective defense weapons, and through redesign to add portability and easier field maintenance, the units could be truck-mounted. DoD has asked LTI to submit a bid for 100 units. The 20 units that LTI has built so far cost the following amounts and are listed in the order in which they were produced: https://d2vlcm61l7u1fs.cloudfront.net/media%2Fdcd%2Fdcda4803-b0ee-4b7a-9b9f-517a17de01bc%2FphpGIWGKB.png a. Based on past experience, what is the learning rate? (Do not round intermediate calculations. Round your answer to the nearest whole percent.) b. What bid should LTI submit for the total order of 100 units, assuming that learning continues? c. What is the cost expected to be for the last unit under the learning rate you estimated?

1. Learning rate = (Average of learning between 1st and 2nd units + Average of learning between 2nd and 4th units + Average of learning between 4th and 8th units + Average of learning between 8th and 16th units )/4
= (8.8/13 + 6.2/8.8 + 4.5/6.2 + 3.2/4.5)/4 * 100
= 70%
2. Cumulative factor for 100 units = Cumulative factor for 120 units – Cumulative factor for 20 units at 70% learning rate
= 19.57 – 7.407 (lookup the table cumulative improvement factor)
= 12.163
Cost for the 100 units = bid should be = first unit cost * Cumulative factor for 100 units
= 13*12.163
= $158.12 million
3. Cost expected to be for the last unit under the learning rate = Cumulative factor for 120 units * first unit cost
= 19.57 * 13
= $254.41 million
 
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