Norwegian Satellite Development Company (NSDC) Cost Estimates for World Satellite Telephone Exchange Project
NSDC has a contract to produce 12 satellites to support a worldwide telephone system (for Alaska Telecom, Inc.) that allows individuals to use a single, portable telephone in any location on earth to call in and out. NSDC will develop and produce the 12 units. NSDC has estimated that the R&D costs will be NOK (Norwegian Krone) 12,000,000. Material costs are expected to be NOK 6,000,000. They have estimated that the design and production of the first satellite will require 120,000 labor hours, and an 70 percent improvement curve is expected. Skilled labor cost is NOK 300 per hour. Desired profit for all projects is 31 percent of total costs.
A. How many labor hours should satellite number 12 require?
B. How many labor hours would be required for the whole project of 12 satellites?
C. What price would you ask for the project? (Round the final answer to the nearest NOK.)
D. Midway through the project your design and production people realize that a 60 percent improvement curve is more appropriate. What cost savings do you expect (neglect profit)?
E. Near the end of the project Deutsch Telefon AG requests a cost estimate for four satellites identical to those you have already produced. What are your incremental costs (do not include profit)?