Question

Your firm designs PowerPoint slides for computer training classes, and you have just received a request to bid on a contract to produce the slides for an 8-session class. From previous experience, you know that your firm follows an 85 percent learning rate. For this contract it appears the effort will be substantial, running 50 hours for the first session. The variable cost is $100/hour and the fixed cost is $600 per session.

a) How much effort (in hours) will be required for the 8^th session?

b) How much total effort (in hours) will be required for all the 8 sessions?

c) If your nominal profit margin is 20 percent, what will be the total bid price (for all 8 sessions) and the per session price.

d) What additional number of labor-hours would be required for a follow-on Contract of 16 sessions? What would be the average labor content of this second contract? Of both contracts combined?

Answer 1

a) Effort required for the eight session = T1*r^n(8)/ln(2)

= 50*.85^ln(8)/ln(2)

= 30.71 hours

b) Total effort required for all 8 sessions = 297.71 hours (computed by Crawford's formula as below)

c) Total cost for 8 sessions = Total fixed cost + variable cost = 600*8 + 297.71*100 = $ 34,571

Total bid price for all 8 session including 20 percent profit margin = 34571 / (1-.2) = $ 43,214

d) Additional labor hours required for follow-on contract of 16 sessions = Total labor hours for 8+16=24 sessons - total labor hours for first 8 sessions

Additional labor hours required for follow-on contract of 16 sessions = 717.47 - 297.71 = 419.76 hours

Average labor content of second contract = 419.76/16 = 26.24 hours

Average labor content of both contracts combined = 717.47/24 = 29.89 hours