RAND Cost-Quantity Calculator

The Cost-Quantity Calculator was produced by the RAND think tank in 1962. I think it was probably intended to replace the 1959 RAND Progress Curve Computer [see earlier post]. It was produced for the United States Air Force to assist them in determining how much they should be paying for large orders of military equipment.

RAND Cost-Quantity Calculator 1For example, suppose that a company had produced a new fighter jet. The first one had cost $1 million to produce. The USAF liked the jet and thought it might like to order 200. How much should it pay for the batch. Clearly not $200 million since it could expect the unit cost to decline as the aircraft manufacturer took advantage of the learning curve, bulk buying of parts and other economies of scale.

RAND Cost-Quantity Calculator 2

RAND log linearThe Cost-Quantity Calculator allowed the USAF to assume a log linear cost reduction curve [from a 95% to a 65% slope] and then calculate the cost it should be paying for the batch of 200. There were other useful calculations which flowed from that. For example, if the USAF decided to ask the manufacturer to produce one extra aircraft it could calculate how much it should be paying for that 201st fighter.

The problem would be negotiating with the aircraft manufacturer to agree what percentage slope should apply.  For a simple item probably only a small reduction in cost per unit could be expected. For a complex item, such as an aircraft, substantial reductions in unit cost could be negotiated.

RAND Cost-Quantity Calculator 3

A page from the 23 page manual

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