Markham, Inc

Markham, 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 + 30%. Markham found that the first unit of a new product required 90 hours to complete. The second unit was completed using only 76.5 hours. Markham believes that the rate of learning that was observed will continue for all 8 units of the contract. The labor wage paid is $40/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?f
(b.) What will be the total fee for the contract?

Correct Answer:

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(a.)
The learning rate is 76.5 hrs/90 hr...

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