A defence contractor is bidding on a military contract for $100$ radar units. The contractor employs $30$ machine

operators who work $165$ hours a month each. The first radar unit required $1145$ operator hours, and the learning

curve for this type of work is known to be $75$ percent. It takes a month to order and receive raw material

components, which cost $$500$ per radar unit. The material is then paid for in the month it is received. Fixed costs

include a month to tool up$,$ which costs $$10,000$ and then $$5000$ per month for every month of production.

Direct labor and variable overhead are $$8$ per hour. The contractor can deliver only completed units and is paid

the following month. Profit is set at $10$ percent of the bid price. Find the bid price, derive the production

schedule and calculate the cash flow schedule. Please use Spreadsheet $($MS Excel$).$ Parts of the solution shown

below:

Bid Price

$0\mathrm{.}7$

$0\mathrm{.}75$

$0\mathrm{.}8$

$0\mathrm{.}85$

Direct Material

Direct Labor

Tooling costs

Mthly fixed

costs

Total costs

Profit

Bid Price

Selling

price$/$unit

$

$2,754\mathrm{.}55$

$

$3,460\mathrm{.}16$

$

$4,433\mathrm{.}49$

$

$5,730\mathrm{.}20$

Cash Flow Schedule$=0\mathrm{.}80$

$1$

$2$

$3$

$4$

$5$

$6$

$10$

Cash Receipts

$

$-$

$

$-$

$

$26,601$

$

$48,768$

Total

$ $4,43,349$

Tool$-$up

$

$10,000$

Production

$

$5,000$

$

$5,000$

$

$10,000$

Labor cost

$

$39,600$

$

$39,600$

$

$40,000$

Material cost

$

$3,000$

$

$4,500$

$ $3,00,458$

Total costs

$

$10,000$

$

$47,600$

$

$49,100$

$

$-$

$

$50,000$

$ $4,00,458$

Cash Balance

$

$(10,000)$

$

$(57,600)$

$

$(80,099)$

$

$(90,298)$

$$(93,129)$

$$(83,160)$

$

$42,891$

Hours

Cum.

Hrs$.$

$0\mathrm{.}7$

$0$

$1$

$1145\mathrm{.}0$

$1145$

$6$

$455\mathrm{.}3$

$4113$

$2$

$801\mathrm{.}4$

$1946$

$7$

$420\mathrm{.}6$

$4534$

$3$

$650\mathrm{.}5$

$2597$

$8$

$392\mathrm{.}6$

$4927$

$4$

$561\mathrm{.}0$

$3158$

$9$

$369\mathrm{.}6$

$5296$

$5$

$500\mathrm{.}1$

$3658$

$10$

$350\mathrm{.}0$

$5646$

Production Schedule