Question
Advanced Weapon Systems (AWS) is in a contract to manufacture and deliver 1,600 units of certain classified military weapon to the US Naval Air Systems
Advanced Weapon Systems (AWS) is in a contract to manufacture and deliver 1,600 units of certain classified military weapon to the US Naval Air Systems Command (NAVAIR). NAVAIR expects the manufacturing and deliveries to be spread over 5 years as follows
- 200 units by the end of 2021
- 250 units by the end of 2022
- 350 units by the end of 2023
- 400 units by the end of 2024
- 400 units by the end of 2025.
AWS will bill NAVAIR at the end of each of the year for the delivery of the units. Thus, NAVAIR will receive 5 invoices one each at the end of years 2021 thru 2025.
AWS has completed a simulation of the pilot run and determined thatThe material cost for the first unit is $208,300. Material cost is expected to go up at an average rate of 6% per year for next 5 years. The average labor cost for the first unit is 9,400 hours. Labor wages in 2021 = $150/hour.
The union contract stipulates that the wage rate will be adjusted at the beginning of the year based on expected national labor inflation rate for the year. AWS management expects the labor inflation rate to be 4% per year for next 5 years. The Labor leaning rate is 80%. The pricing structure for purchased material will not follow any learning curve.
AWS has contract to bill the government at cost plus 12% of total cost.
You must submit a summary the Procurement Officer of NAVAIR indicating the expected amount to be billed at the end of each of the five years, along with the total project cost (labor + material). Make sure the letter includes a table summarizing the material cost, labor cost and the total cost year by year for the 5 years, indicating the expected contract amount to be invoiced by year along with the total project cost. Display the results in only dollar accuracy - ignore cents.
What is the average expected total unit cost of the weapon?
Note: While there indeed exists a Federal Government Organization called NAVAIR, the entire case is hypothetical.
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