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 100,000 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.

What impact does this have on the project?

Midway through the project, your design and production people realize that a 75 percent improvement curve is more appropriate.

75% cumulative = 4.802 accumulative

The whole project: 100,000 x 4.802 = 480,200 labor hours

Skilled labor cost: 300 NOK p/hour = 480,200 x 300 = 144,060,000 NOK (80%)

160,380,000 NOK - (75%) 144,060,000 NOK =

Labor hour cost difference= 16,320,000 NOK (The cost will be reduced in a 10.17% respect the 89% learning curve cost)