Modifications to conform to government safety requirement

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Reference no: EM131734376

Volkswagen (VW) Motor Company has discovered a problem in the exhaust system of one of its automobile lines and has voluntarily agreed to make the necessary modifications to conform to government safety requirements. Standard procedure is for the firm to pay a flat fee to dealers for each modification completed.

VW is trying to establish a fair amount of compensation to pay dealers and has decided to choose a number of randomly selected mechanics and observe their performance and learning rate. Analysis demonstrated that the average learning rate was 90 percent, and VW then decided to pay a $75 fee for each repair (3 hours × $25 per flat-rate hour).

Eastway Volkswagen dealership has complained to VW Motor Company about the fee. Six mechanics, working independently, have completed two modifications each. All took 9 hours on the average to do the first unit and 6.3 hours to do the second. Eastway refuses to do any more repairs unless VW Motor Company allows at least 4.5 hours per modification.

What is your opinion of VW’s allowed rate and the mechanics’ performance? Does it appear that the mechanics have a good deal? Why or why not? How many repairs a mechanic (and the dealership) will have to do to breakeven under the current compensation scheme of $75 per repair? (Note: some calculations are required for this question.)

Reference no: EM131734376

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