You are in charge of a large assembly shop that specializes in contract assignments. One of your customers has promised to award you a large contract for the assembly of 1,000 units of a new product. The suggested bid price in the contract is based on an average of 20 hours of direct labor per unit. You conduct a couple of test assemblies and find that, although the first unit took 50 hours, the second unit could be completed in just 40 hours.
a. How many hours do you expect the assembly of the third unit to take?
b. How many hours do you expect the assembly of the 100th unit to take?
c. Is the contract’s assumption about the average labor hours per unit valid or should the price be revised?