New Venture, Inc

New Venture, Inc. has received a contract for 8 units of a new product. The contract is a cost-plus contract, with the total to be received equal to the total labor cost + 20%. New Venture found that the first unit of a new product required 120 hours to complete. The second unit was completed using only 114 hours. New Venture believes that the rate of learning that was observed will continue for all 8 units of the contract. The labor wage paid is $25/hour. The following factors are available for various rates of learning: 80% learning, b = -0.3219; 85%, b = -0.2345; 90%, b = -0.1520; 95%, b = -0.0740.
Required:
(a.) What will the total labor cost be for the contract?
(b.) What will the total fee be for the contract?

Correct Answer:

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(a.)
The learning rate is 114 hrs/120 hr...

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