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!!)
Find the learning rate for the domestic plant.
Find the time required and unit cost for the 1st, 10th, 20th and 22nd units respectively for each of the two plants.
Comment on what you observe in the relative unit labor costs.
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.