This assignment is designed to demonstrate that the learning curve concept plays a vital strategic role in location decision.
A company started making a new product simultaneously in a domestic plant and in an offshore plant.
For the domestic plant: An assembly took 2.5 hours for the first unit and 18.50 hours for the first 20 units. The labor rate is $35 per hour.
For the offshore plant: The first unit took the same time (2.5 hours) and the learning rate is found to be 85%. The labor rate is $15 per hour (less than half of the domestic plant!!)
problem 1: Find the learning rate for the domestic plant.
problem 2: Find the time required and unit cost for the 1st, 10th, 20th and 22nd units respectively for each of the two plants.
problem 3: Comment on what you observe in the relative unit labor costs.
problem 4: Now, find the unit number at which even the cumulative cost (counting from the first unit) in the offshore plant is higher than that in the domestic plant.