Chapter 12 – quantitive analysis In Budgeting

Question 1

What are the numerical techniques that can be useful in the preparation of budgets

Answer 1

Hi Lo method.

Learning curves

Regression analysis

Time series analysis

Question 2

What are the conditions for the learning curve

Answer 2

There is a significant manual element in the task being considered

The task must be repetitive

Production must be at an early stage so that there is room for improvement

There must be consistency in the workforce

There must not be extensive breaks in production or workers will forget the skill

Workforce is motivated

Question 3

How to calculate the learning curve

Answer 3

Let’s say that one unit takes 100 hours to produce and there is a 75% learning curve. Two units take 75% to produce therefore 2×75 is 150. Not 175 and therefore it took 50 hours to make the second one. Four units times by 56.25 as that is 75% of 75 this gives 225 and therefore the third and fourth attempt took 75 hours. However at this point you are not able to know how long the third took by itself all the fourth took by itself.

The purpose of the learning curve is to know how much cost should be included in regards to labour as there is no point putting 100 hours if we know that there is a learning curve percentage

Question 4

What is the formula for the learning curve

Answer 4

y = AXb (to the power of b)

Y = average time per unit
A= time for first unit
X = number of units
B = learning rate

If learning rate isn’t give then it’s
B = log r / log 2 for example if the learning rate was 85% then it would be log 0.85 / log 2. It is always negative

Question 5

How do we know what the learning Rate is ?

Answer 5

If it takes 80 hours to make the first unit and 55 to make second what is the learning rate ? First takes 80 hours, second takes 67.5 hours (80+55/2) therefore 67.5/80 = 84%