You are an experienced machinist with a small tool shop. You have been asked to submit a bid to produce fourteen (14) special clamps for a new die that is under construction. You estimate that the material costs (metal and fasteners) for each clamp are $175.00. You also estimate that 10.00 labor hours are needed to produce the first clamp. The value of your labor is $50/hour.
a) From similar orders in the past, you estimate that there is a 80% learning curve for this type of work. Using this information, what is the lowest total bid you should submit if you charge a 10% markup on material and you wish to recoup your labor costs? (Hint: if you know how, it will save time to set up formulas in Excel. Just attach a print-out of Excel work)
b) Your potential customer is receptive to your bid from part a, but is hesitant to award you the order because the average cost per clamp that you bid is 5% higher than his target. You respond to the customer that if they would increase their order from 14 clamps to x clamps, you could beat his target price. What is x? (Hint: again, while you can do it by hand, it is tedious so setting it up in Excel saves time. Just attach a print-out of Excel work)