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?
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
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
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