A company has accepted an order for making 15 items of a specialized machine at a price of Rs. 4 lacs each. The delivery is to be completed within 4 months. The company works 23 days a month and the normal direct wages per day amount to Rs. 10,000. However, in case of need, the company can work over time upto 8 days during the said period at double the normal rate of wages. Overheads amount to Rs. 12,000 per normal working day but no overheads are charged on overtime working days. The material cost is Rs. 2,40,000 per machine. The company has estimated that it will take 10 working days to manufacture the first machine. The company is expected to experience a learning effect of 90% (b=0.152). The contract stipulates a penalty of Rs. 40,000 per machine delivered beyond the schedule of 4 months. You are required to calculate the costs and advise the company whether it is preferable to work only during normal working days and pay penalty for any delayed delivery of the machines or to work overtime to avoid paying penalty.
Solution
Working days 23 p.m. × 4 = 92 days
Time per machine = 10 days
Learning curve = 90%
Average time for
15 machines 15 × 10 × 15 –0.152 = 99.4 days
14 machines 14 × 10 × 14 –0.152 = 93.7 days
13 machines 13 × 10 × 13 –0.152 = 88.0 days
So 13 machines can be supplied in time
What is the formula used to calculate the average time above..
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