A Contractor Builds Large Ships for the Department of Defence

question 63

Essay

A contractor builds large ships for the Department of Defence. 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% learning would be appropriate. In fact, the first ship cost $1.6 billion and the second $1.12 billion. What is the revised learning rate? What will be the total cost of the twelve ships? Is it higher or lower than the original estimates? If the defence department cuts the contract from 12 ships to 9, what happens to the average cost per ship?

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Definitions:

Staffing Budget

A financial plan that outlines the funds allocated for hiring and compensating employees.

Service Demands

The consumer's need or desire for services, which can vary based on factors like time, location, and quality preferences.

Capital Expenditures Budget

A budget that outlines planned investments in fixed assets, such as property, plant, and equipment, which are expected to provide benefits over multiple periods.

Investing Activities

Financial transactions and activities related to the acquisition or sale of long-term assets and investments.