12.2 Learning Curve Analysis Flashcards
A company experiences a cumulative learning curve of 75% on the manufacturing of a particular electrical product. It takes 100 hours to make the first 500 units. How many hours will it take to make 2,000 units in total?
A. 250.00
B. 231.25
C. 225.00
D. 300.00
C. 225.00
The effects of the company’s projected learning curve of 75% can be calculated as follows:
Batch 1
Cumulative units produced: 500
Cumulative Average Batch Time: 100
Cumulative Total Time: 100 (1 × 100)
Batch 2
Cumulative units produced:1,000
Cumulative Average Batch Time: 75 (100 × 75%)
Cumulative Total Time: 150 (2 × 75)
Batch 4
Cumulative units produced: 2,000
Cumulative Average Batch Time: 56.25 (75 × 75%)
Cumulative Total Time: 225 (4 × 56.25)
It will take 225 hours to produce 2,000 units in total.
An entity is preparing a bid for a special project requiring the production of 35,000 units. The engineering personnel have advised that the units can be produced in groups with the first group consisting of 1,000 units. A review of prior experience indicates that the direct labor time needed per unit will be progressively smaller by a constant percentage rate as experience is gained in the production process. The quantitative method that would best estimate the entity’s total cost for the project is
A. Dynamic programming.
B. Time series analysis.
C. Linear programming.
D. Learning curve analysis.
D. Learning curve analysis.
Learning curves reflect the increased rate at which people perform tasks as they gain experience. Thus, the time required to perform a given task becomes progressively shorter. Ordinarily, the learning curve is expressed as a percentage of reduced time to complete a task for each doubling of cumulative production.
Moss Point Manufacturing recently completed and sold an order of 50 units that had costs as shown in the next column.
The company has now been requested to prepare a bid for 150 units of the same product.
Direct materials: $ 1,500
Direct labor ($8.50 × 1,000 hours): 8,500
Variable overhead (1,000 hours × $4.00)*: 4,000
Fixed overhead**: 1,400
=$15,400
*Applied on the basis of direct labor hours.
**Applied at the rate of 10% of variable cost.
If Moss Point had experienced a 70% learning curve, the bid for the 150 units would
A. Show a 30% reduction in the total direct labor hours required with no learning curve.
B. Include increased fixed overhead costs.
C. Be 10% lower than the total bid at an 80% learning curve
D. Include 6.40 direct labor hours per unit at $8.50 per hour.
D. Include 6.40 direct labor hours per unit at $8.50 per hour.
The sum of the direct labor hours for the initial lot of 50 units was 1,000. A second lot of 50 would reduce the cumulative hours per lot to 700 (70% x 1,000 hours). A doubling to four lots would reduce the cumulative hours per lot to 490 (70% x 700 hours). Thus, for an output of 200 units, the total hours worked would be 1,960 (4 lots x 490 hours). Subtracting the 1,000 hours required for the first 50 units from the 1,960-hour total gives 960 hours for the last 150 units. Dividing 960 hours by 150 units produces a per-unit time of 6.4 hours.
Which one of the following will allow a better use of standard costs and variance analysis to help improve managerial decision-making?
A. Company D constantly revises standards to reflect learning curves.
B. Company B uses the prior year’s average actual cost as the current year’s standard.
C. Company C investigates only negative variances.
D. Company A does not differentiate between variable and fixed overhead in calculating its overhead variances.
A. Company D constantly revises standards to reflect learning curves.
Learning curves are an established phenomenon. Workers learn a new task at a predictable rate and the resulting improvements in productivity should be factored into standard setting and variance analysis.
