Question

An aircraft manufacturer supplies aircraft engines to different Airlines. They have just completed an initial trial order for 30 engines involving a total of 6000 direct labour hours at Rs 20 per hour. They have been asked to bid prospective contract for supply of 90 engines. It is expected that these will be 80% learning effect. Estimate the labour cost for the new order.

Answer 1

a = 6000 hrs., 1 lot = 30 engines, x = 120 engines = 4 lots 

Table method

Total time taken to produce 120 engines = 15360 

Time taken to produce 30 engines = 6000 

Total time taken to produce 90 engines 

= 15360 – 6000 = 9360 

Labour cost at Rs 20 per hour = 9360 × 20 = 1,87,200 

Formula Method 

a = 6000 hours, x = 4,

y = ax^b 

log y = log a + b log x 

= log 6000 – 0.3219 x log 4 

= 3.7782 – 0.3219 × 0.6021 = 3.7782 – 0.1938 = 3.5844 

y = A.L (3.5844) = 3841 

Total number of hours required to produce 4 lots (120 engines) 

= 3841 × 4 = 15364 hours. 

∴ Total number of hours required to produce 90 engines 

= 15364 – 6000 = 9364 hrs. 

Labour cost at Rs 20 per hour = 20 × 9364 = Rs 1,87,280