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Learning Curve Notes

This document discusses learning curves and their application to management accounting. It explains that as a worker gains experience through repeated tasks, the time taken to complete each additional unit decreases by a constant percentage. This results in lower costs as output increases. The learning curve equation is presented, along with an example of how average time per unit decreases as cumulative output doubles. Conditions required for learning curves and factors that can limit their use are also outlined.

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173 views

Learning Curve Notes

This document discusses learning curves and their application to management accounting. It explains that as a worker gains experience through repeated tasks, the time taken to complete each additional unit decreases by a constant percentage. This results in lower costs as output increases. The learning curve equation is presented, along with an example of how average time per unit decreases as cumulative output doubles. Conditions required for learning curves and factors that can limit their use are also outlined.

Uploaded by

FellOut X
Copyright
© © All Rights Reserved
Available Formats
Download as PDF, TXT or read online on Scribd
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lOMoARcPSD|3866845

Learning Curve Notes

Management Accounting Performance Evaluation  (University of Derby)

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Management Accounting - Learning Curve

Learning Curve
- If you practice something you will get better at it
and it will take less time to do.

- Less time = Less cost

- Hours per unit decrease by a constant percentage


every time cumulative output is doubled.

- If the improvement is 30% the learning rate is:


100% - 30% = 70% - The learning rate

- Experience curve includes other costs such as


administration, marketing and distribution.

Learning Curves and Budgeting


- Average costs are more important than costs of individual units.
- If costs fall as production volumes increase, then this has to be built into cost estimates.
- If cost plus pricing used starts failing to take cost reductions into account then it can make prices
uncompetitive.

Conditions needed for the Learning Curve


 Motivated Workforce  Consistency in workforce  No breaks in production
 Early stage of production  Complex task  Repetitive task
 Large manual element

Learning Curve
Hours per unit decrease by a constant percentage every time cumulative output is doubled

Y = aXb

Y = Cumulative average time to produce X units


X = Cumulative number of units made
b = Index of learning, log r / log 2 - Log (Learning Rate) / Log (2)
a = Time taken to produce the first unit

For example, if the learning rate was 80% then b = Log (0.8) / Log 2 = -0.322

Assume that the first unit takes 2 hours and an 80% learning rate applies:

Cumulative units made Calculation Average hours per unit


1 - 2
2 Y = 2 x 2-0.322 1.6
4 Y = 2 x 4-0.322 1.28
8 Y = 2 x 8-0.322 1.02
16 Y = 2 x 16-0.322 0.82

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32 Y = 2 x 32-0.322 0.66
Learning Curve effect ceases when
- Machine efficiency restricts further improvements
- Physical limits reached
- Workforce ‘go - slow’
It then goes to its steady state where the learning rate ceases to effect the speed of production.

Factors that can limit its use in practice

 Learning curve theory depends on a high content of labour in the production process, otherwise
learning’s cannot be achieved.

 High staff turnover will also reduce the learning effect as new staff have to begin at the bottom
of the learning curve.

 Modern technology has replaced people with machines so there is reduced opportunities for
learning.

 Staff need to be happy with good morale as learning curve will not work on a go slow.

 There needs to be constant production as the learning effect is lost if there is a break in
production.

Discretionary costs
An optional cost that a decision maker must periodically review to determine whether it continues to
be in accord with ongoing policies.
It is unaffected by level of production; amount within a time period is determined by the budget
holder. There is no direct link between spend (inputs) and income (output).
Examples of these costs include:
- Admin costs.
- Research and Development costs.
- Marketing costs.

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