Assume that General Electric, which manufactures high-technology instruments for spacecraft, 1s con- Gocue:

sidering the sale of a navigational unit to a government agency in India that wishes to launch its own (Appendix B)

communications satellite. The government agency plans to purchase eight units for a total of $2,500,000, (LO 7)

although it would also consider buying 16 units for a total of $4,000,000. General Electric requires a margin of 40 percent of sales to cover administrative costs, contribute to basic research, and make a profit. For example, the sale of eight units must cost no more than $1,500,000 to produce [(1.00 — .40)

x $2,500,000]. General Electric has started a chart for this product assuming the production costs are subject to g 75 percent cumulative learning curve.

Cumulative Number Average Production Total Production of Units Produced Cost per Unit Costs il cect deta tebaei aden deny,, Metabo ome eter $400,000 $400,000 a a ae a es A 300,000 600,000 LA eee tea eee las Tere ea ts @ u OPM aera ieee reeset esas danas ee 2 ?

MG se stacea dese beta aC ReRC ON een eRe @ 2 Required

a. Complete the chart by filling in the cost amounts for volumes of 4, 8, and 16 units.

b. Should General Electric sell eight units? Should it sell 16 units?