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NSDC has a contract to produce eight satellites to support a worldwide telephone system (for Alaska Telecom, Inc.) that allows individuals to use a single, portable telephone in any location on earth to call in and out. NSDC will develop and produce the eight units. NSDC has estimated that the R&D costs will be NOK (Norwegian Krone) 12,000,000. Material costs are expected to be NOK 6,000,000. They have estimated the design and production of the first satellite will require 110,000 labor hours and an 80 percent improvement curve is expected. Skilled labor cost is NOK 300 per hour. Desired profit for all projects is 25 percent of total costs.

(a) How many labor hours should the eighth satellite require?
(b) How many labor hours for the whole project of eight satellites?

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Answer:

a. Average time of producing the 1st batch (a) = 110,000 hours

Defined cummulative output (x) = 8 satellites

b= Log of learning curve %/Log 2

Y = axb

Y = 110,000(8)log 0.8/log 2

Y = 110,000 x 0.512

Y = 56,320 hours

b. The total labour hours for the whole project

   = 56,320 hours x 8 satellites

   = 450,560 hours

Explanation:

Improvement curve is a function of average time of producing the 1st batch of satellites multiplied by the defined output raised to power log of learning curve % divided by log 2.

The total labour hours for the whole project equals average time of producing 8 satellites multiplied by 8 satellites.