Question

It took a Wisconsin shipyard 125,000 labor-hours to produce the first of several tugboats that you expect to purchase for your shipping company, Great Lakes, Inc. Boats 2 and 3 have been produced by the company with a learning factor of 85%. At $40 per hour, what should you, as purchasing agent, expect to pay for the fourth unit?

Answer 1

A learning curve is

Y = cumulative average time per unit

a = time taken to produce initial quantity.

X = the cumulative units of production

b = the learning index or coefficient, which is calculated as: log learning curve percentage ÷ log 2

We need to find out the time taken for making 4 units and 3 units first

a= 125000

b= -0.234

>>>For X=3,

Y = 96663.75

Cummulative time for 3 units = 96663.75*3 = 289991.25 hrs

>>> For X= 4

Y = 90370.77

Cummulative time for 4 units = 90370.77*4 = 361483.08 hrs

Time taken to produce 4th unit = 361483.08-289991.25 = 71491.83 hrs

expected payment for 4th unit = 71491.83*40 = $2859673.2