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 the rate of $100/hour and the overhead is expected to run a fixed $600 per session. The finder 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

Answer is explained in the explanation section below.        

Explanation:

To figure out the total bidding price, we must first figure out the total cost of all eight sessions.

To calculate the total expense, we must first determine the total number of hours required for each of the eight sessions.

Now that we know the learning rate is 85% and the first session took 50 hours, we can look up the coefficient of 8 under 85% in the learning curve table E3 and calculate it by the time spent on the first session. The average time taken for 8 sessions with an 85 percent learning curve would be the result.

Total time taken for 8 sessions = 50 x 5.936 (coefficient of 8 under 85% learning rate) = 296.8 = 297 hrs

Fixed cost = 600 x 8 = $4800

Variable cost = 100 x 297 = $29700

Total Cost = 29700 + 4800 = $34500

Total bid price = 34500 x 1.2 = $41400 (adding 20% profit margin on cost)

Price per session = 41400 / 8 = $5175

Break Even Session = 34500 / 5175

Break Even Session = 6.67

Hence, the total cost will be covered by the 7th session.

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