A firm is considering to bid as an assembly subcontractor

A firm is considering to bid as an assembly subcontractor for a new boat. The initial investment (which involves activities such as training, acquisition/production of special tools, re-design of work area) is $250,000. The negotiated contract price per unit to be built is $160,000. The contract entails production of 10 units of the product. The management estimates the costs as follows. (i) Raw materials and utilities: $70,000 per unit produced; (ii) Hourly wage is $16 per worker; (iii) Miscellaneous variable expenses charged at 20% of direct labor costs. Based on the design and related process charts, the management estimates that a unit would take 400 hours to make by a team of 11 workers. The management estimates that the assembly team will experience 70% learning. MANAGERIAL ISSUES: Should the company bid for the contract? (Is it profitable?) What is the impact of learning on the firm’s decision? To address the above managerial issues, consider the following questions: 1. Does the firm break even in there is no learning? If so, what is the break-even quantity? What is the profit? 2. Does the firm break even if there is learning? If so, what is the break-even quantity? What is the profit?