Learning curves

Question 1

what happens as workers become more familiar with the production of a new product

Answer 1

average time (and average cost) will decline and exhibit a geometric relationship (learning curves)

Question 2

what happens as cumulative output doubles (learning curves) *

Answer 2

the cumulative average time per unit falls to a fixed percentage of the previous average time

Question 3

what geometric formula can be used to establish the average time (or average cost) per unit *

Answer 3

y=ax^b,
y= average time (or average cost) per unit,
a= time (or cost) for first unit,
b= slope = logr/log2 (r= rate of learning),
x= cumulative output

Question 4

what do each of the components of the geometric formula used in learning curves y=ax^b

Answer 4

y= average time (or average cost) per unit,
a= time (or cost) for first unit,
b= slope = logr/log2 (r= rate of learning),
x= cumulative output

Question 5

what does y mean y=ax^b

Answer 5

y= average time (or average cost) per unit

Question 6

what does a mean y=ax^b

Answer 6

a= time (or cost) for first unit

Question 7

what does x mean y=ax^b

Answer 7

x= cumulative output

Question 8

what does b mean y=ax^b

Answer 8

b= slope = logr/log2 (r= rate of learning)

Question 9

what are the practical applications of learning curves *

Answer 9

calculate incremental costs of making extra units,
quote selling prices for a contract where prices are calculated at cost plus a mark-up,
prepare realistic production budgets,
prepare realistic standard costs for cost control purposes

Question 10

what are the limitations of learning curve theory *

Answer 10

not always present,
may not be constant,
assumes stable conditions at work (no labour turnover),
breaks between production of items can’t be too long or workers ‘forget’,
production techniques might change,

Question 11

what are experience curves

Answer 11

these cover all costs and are very similar to learning curves, all costs reduce with experience to some extent

Question 12

what do experience curves cover (different to learning curves but similar) *

Answer 12

material costs may decrease due to less wastage or quantity discounts,
variable overheads should follow the same pattern as labour,
as volume increases fixed overheads per unit will fall

Question 13

if in learning curves it says after the 700th unit, all subsequent units cost the same, how do you work out the cost of the 700th unit

Answer 13

only way to see how much last one is to work out how much it costs for 699 units and how much it costs for 700 units and minus to get the price of the last one

Question 14

what is one reason for a company not getting learning curve effects

Answer 14

if the company has a high labour turnover then they won’t get the learning curve effects (because the labour won’t get better and become more efficient because they are not employed for long enough)

Question 15

learning curve question asks you to calculate the total labour time in july - how? *

Answer 15

total budgeted labour time for july = total time to end of july - total time to end of june,
(bottom 17)