Your program plans to acquire a total of 600 end items costing $535 million over a five-year period (five Lots). The first production contract is to be awarded in FY14. The number of items to be procured (not delivered) each year and their estimated cost (in then-year dollars) is shown below:
Lot FY Lot Size Total Lot Cost
1 FY14 50 $50 million
2 FY15 100 $95 million
3 FY16 150 $135 million
4 FY17 150 $130 million
5 FY18 150 $125 million
To calculate the total cost of acquiring the end items over the five-year period, you need to multiply the lot size by the unit cost for each lot and then sum them up.
For Lot 1 in FY14, the lot size is 50 and the total lot cost is $50 million. So, Lot 1's unit cost is $50 million divided by 50, which equals $1 million.
For Lot 2 in FY15, the lot size is 100 and the total lot cost is $95 million. Therefore, Lot 2's unit cost is $95 million divided by 100, which equals $0.95 million.
Similarly, you can calculate the unit cost for Lots 3, 4, and 5 using the same method.
- For Lot 3 in FY16, the unit cost is $135 million divided by 150.
- For Lot 4 in FY17, the unit cost is $130 million divided by 150.
- For Lot 5 in FY18, the unit cost is $125 million divided by 150.
Once you have the unit costs for each lot, you can multiply them by the respective lot sizes to get the total cost for each lot.
After calculating the total cost for each lot, you can sum them up to get the total cost of acquiring the end items over the five-year period.