Atkinson Stainless Steel Fabrication Company (ASSFC) are specialist in designing and fabricating the stainless steel tanks for pharmaceutical, Food and Chemical industries. Kaza Pharma Inc. (KPI) gave the first order to supply twelve units. ASSFC produced and delivered these twelve units to KPI.

Three departments are involved, design, engineering, and quality, where learning differs. The first unit produced by ASSFC took 36 hours from the engineering department, 23 hours from the design department and 18 hours from the quality department. Material and other costs for each unit are fixed at $672 per unit. ASSFC determined a learning rate of 75% in engineering department hours, 85% in design department hours and 65% in quality department hours. ASSFC pay $45, $42, and $48 per hour to their workers in the engineering, design, and quality departments, respectively.

Kaza Pharma Inc placed a first follow-on contract (second order) for 33 units immediately after receiving the first order. Learning in all three departments continues, and the ASSFC pay rate, material, and other costs are not changed.

(a) What would be the average cost of a unit in this first follow-on contract?

(b) What will be the cost of the 6thunit of this first follow-on contract?

(c) ASSFC completed and delivered the first follow-on contract. KPI placed 2ndfollow-on contract (third order) for 120 more units. Now the pay rates in all departments of ASSFC increased by 17.50%, and material and other costs raised to $785.

• (c-i) Assume that the conditions are totally in ASSFC's favour; that means the learning continues in all three departments. What would be the total cost of this 2ndfollow-on contract?
• (c-ii) Assume that conditions are totally in ASSFC's favour; that means the learning continues in all three departments. What would be the cost of the 25thunit of the 2ndfollow-on contract?
• (c-iii) Suppose there was a significant delay between the last order and this second follow-on order. Assume that conditions are not in ASSFC's favour; that means the learning achieved by completing the previous two orders didn't continue. What would be the total cost of this 2ndfollow-on contract?