Norwegian Satellite Development Company Cost Estimates for World Satellite Telephone Exchange Project

NSDC has a contract to produce 7 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 7 units. NSDC has estimated that the R&D costs will be NOK (Norwegian Krone) 12,000,000. Material costs are expected to be NOK 7,000,000. They have estimated the design and production of the first satellite will require 100,000 labor hours and a(n) 75 percent improvement curve is expected. Skilled labor cost is NOK 300 per hour. Desired profit for all projects is 20 percent of total costs.

A. How many labor hours should satellite number 7 require?

B. How many labor hours would be required for the whole project of 7 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 70 percent improvement curve is more appropriate. What cost savings do you expect (neglect profit)? (Round the final answer to the nearest NOK.)

E. Near the end of the project Deutsch Telefon AG has requested a cost estimate for four satellites identical to those you have already produced. What are your incremental costs (do not include profit)?