Exercise:

Your firm designs PowerPoint slides for computer training classes, and you have just received a request to bid on a contract to produce the slides for an eight-session class.From previous experience, you know that your firm follows an 85 percent learning rate.For this contract it appears the effort will be substantial, running 50 hours for the first session.Your firm bills at a rate of $100/hr. and the overhead is expected to run a fixed $600 per session.The customer will pay you a flat fixed rate per session.If your nominal profit margin is 20 percent, what will be the total bid price, the per session price, and at what session will you break even?

NOTE:

The exercise refers to the green section on page 301 and 302 [286 & 287 9th edition].The key here is to make sure you understand the learning rate.

It takes 50 hrs. to create the first session.

With a learning rate of 0.85, the second session should follow the equation on the top of page 302.

Remember when calculating "r," use log(0.85)/log(2).

Also remember that T1 is 50 hrs.So for session 2 you would say the labor (T2) is 50 hrs x 2 ^ r = 42.5 hrs.

The rest of the sessions will follow the same pattern (Make sure you repeat using T1 for your equation).

I would list the costs per each session in the following columns

(Sessions Number)(Hrs.)(Labor Costs)(Session Costs)(Profit)(Total Cost of Session).

Make sure you answer all of the questions

(Bid price, per session price and when you will breakeven).

Remember breakeven point is when a business can cover all its expenses and begin to make profit