ABSTRACT: Elora Electronics, Limited (EEL), a fictitious company, manufactures sophisticated, high‐tech electronic equipment. Though successful in the past, the company has seen a decline in the number of bids it has won. Management is especially concerned about the bids the company recently lost on one of its main products, a sophisticated radar system. Most of the contracts for EEL, including those for the radar system, are bid on a “cost‐plus” basis. Up to this point, divisional managers have used a simple average of recent actual costs to estimate costs for contract‐bidding purposes. Such a procedure was deemed useful for cost‐control purposes because actual costs have consistently been below budgeted costs. However, given the changed competitive environment in which EEL now finds itself, these managers are now wondering whether the contract‐bidding process can be made more successful through the use of a more sophisticated approach to cost estimation.
For purposes of completing this case, assume that you were recently hired by EEL as a management accountant for the Radar Unit. For your first assignment you have been asked to use Excel (or other software, such as SPSS) to analyze and model the direct labor‐hour (DLH) consumption associated with the production of radar units. (The production of these units requires a significant amount of highly skilled labor.) You have a set of historical observations to which you've been asked to fit both linear and nonlinear functions (in the form of learning curves); these observations relate to the last 14 radar units produced by EEL. Among other tasks, you will need to generate and interpret for management the statistical output associated with the model‐fitting task and to recommend to the company a particular model for cost‐estimation purposes. There is an expectation that the model you recommend will be used by EEL for contract‐bidding purposes. To prepare adequately for your cost‐analysis project, you will need to complete two “refresher” tutorials presented as appendices to the case.