A Contractor Builds Large Ships for the Department of Defense

question 101

Essay

A contractor builds large ships for the Department of Defense.A recent contract called for 12 amphibious landing platforms.It was originally estimated that the first of these would cost $1 billion and that 80 percent learning would be appropriate.In fact,the first ship cost $1.6 billion and the second $1.12 billion.What is the revised learning curve? What will be the total cost of the twelve ships? Is it higher or lower than the original estimate? If the defense department cuts the contract from 12 ships to 9,what happens to the average cost per ship?

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Definitions:

Support Department

A division within an organization that provides assistance and advice services to those who buy or use its products or services.

Cost Allocations

The procedure of distributing indirect costs to various cost objects such as products, services, or departments.

Actual Costs

The true costs incurred for materials, labor, and overhead in the production of goods or services, as opposed to estimated or standard costs.

Budgeted Costs

Projected financial figures related to the expenses expected to be incurred over a budget period.