A manufacturer of special petrochemical equipment with a proven track record of 80% learning has estimated that it spent 12,000 labor-hours at $25.00 per labor-hour on the production of the first unit of a customized equipment. However, the company has realized that the production of the fifth unit of the same equipment costs the company $210,000.
a) The company decides that due to the discrepancy in the initial calculation of labor-hours, the base line of learning-curve estimates must be revised. What should the revised labor-hours for the first unit be?
b) If the company decides to limit the total budget of producing 10 units to $2,200,000 (2.2 million), how much will the cumulative cost of producing 10 units be under/over the budget be?