Question # 3

Master Robotic Engineers (MRE) develops a new air fryer with a new heat circulation process. This air

fryer works with low power consumption. Nations Electronics Stores (NEC) gave the first order to

supply nine units. MRE produced and delivered these nine units to NEC.

Three departments are involved, mechanical, electrical and testing, where learning differs. The first unit

produced by MRE took 34 hours from the mechanical department, 21 hours from the electrical

department and 16 hours from the testing department. Material and other costs for each unit are fixed at

$85 per unit. MRE determined a learning rate of 65% in mechanical department hours, 90% in electrical

department hours and 75% in testing department hours. MRE pay $35, $38, and $32 per hour to their

workers in the mechanical, electrical and testing departments, respectively.

Nations Electronics Stores (NEC) placed a follow-on contract (second order) for 26 units immediately

after receiving the first order. Learning in all three departments continues, and the MRE pay rate,

material, and other costs are not changed.

1. What would be the total cost of this follow-on contract?
2. What will be the cost of the 15th unit of this follow-on contract?
3. MRE completed and delivered the first follow-on contract. NEC placed 2nd follow-on contract (third order) for 115 more units. Now the pay rates in all departments of MRE increased by 15%,and material and other costs raised to $105.

(c-i) Assume that conditions are totally in MRE's favour; that means the learning continues in all three departments. What would be the total cost of this 2nd follow-on contract?

(c-ii) Assume that conditions are totally in MRE's favour; that means the learning continues in all three departments. What would be the cost of the 25th unit of the 2nd follow-on contract?

(c-iii) Suppose there was a significant delay between the last order and this follow-on order. Assume that conditions are not in MRE's favour; that means the learning achieved by completing the previous two orders didn't continue. What would be the total cost of this 2nd follow-on contract?