Question 1

Lockheed Martin has been approached by the Department of Defense to prepare a bid for Starlight rocket launchers.

1. Use learning curve theory and prepare a cost bid for 15 Starlight rocket launchers given the following data for the prototype (i.e., the model). You must prepare a separate bid using (a) the cumulative average-time learning model, and (b) the individual unit-time learning model.

The prototype took 2,000 hours to produce and has the following cost information. The prototype can be sold as a part of the contract.

Direct materials $600,000

Direct labor (2,000 hours @ $200 per hour) $400,000 Variable direct manufacturing overhead (2,000 hours @ $100) $200,000 Other manufacturing overhead (20% of direct cost) $240,000

$1,440,000(i.e., 20% of direct materials, direct labor, and variable overhead)

Total Cost

In preparing each bid, integrate the learning curve into the bid by relying on the following historical data for the production of 16 Sky rocket launchers, which was the previous generation of the Starlight launchers.