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CIMA Paper P2 Advanced Management Accounting Ian Kusano and Nathi - - PowerPoint PPT Presentation
CIMA Paper P2 Advanced Management Accounting Ian Kusano and Nathi - - PowerPoint PPT Presentation
CIMA Paper P2 Advanced Management Accounting Ian Kusano and Nathi Thela Session Learning Curves 1 Learning Outcome Lead A1: Evaluate techniques for analysing and managing costs for competitive advantage Component A1d): Apply learning curves
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Learning Outcome
Lead A1: Evaluate techniques for analysing and managing costs for competitive advantage Component A1d): Apply learning curves to estimate time and cost for activities, products and services
- Learning curves and their use in predicting product/service
costs, including derivation of the learning rate and the learning index.
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Learning Curve
- It has been observed in some industries that there is a
tendency for labour time per unit to reduce in time
- as more of the units are produced, workers become more
familiar with the task.
- The first time a new operation is performed, both the workers
and the operating procedures are untried. As the operation is repeated, the workers become more familiar with the work, labour efficiency increases and the labour cost per unit declines.
- Wright's Law states that as cumulative output doubles, the
cumulative average time per unit falls to a fixed percentage (the 'learning rate') of the previous average time.
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Session Content
Learning Curves
Applications The Formula The Table
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Learning Curve
As cumulative output doubles, the cumulative average time per unit falls to a given percentage
- f the previous cumulative average time per unit.
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Learning Curve
A new product will take 100 hours for the first unit. An 80% learning curve applies
Cumulative Incremental Units Average time p.u. Total time Units Total time Average time p.u. 1 100 100
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Learning Curve
A new product will take 100 hours for the first unit. An 80% learning curve applies
Cumulative Incremental Units Average time p.u. Total time Units Total time Average time p.u. 1 100 100 1 100 100 2 80 160 1 60 60 4 64 256 2 96 48 8 51.2 409.6 4 153.6 38.4 16 40.96 655.36 8 245.76 30.72
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Learning Curve Formula
y = a x b
Average hours per unit Hours for 1st unit Cumulative
- no. of units
Log learning rate Log 2
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Learning Curve – Exercise 1
The first unit of a new product is expected to take 100
- hours. An 80% learning curve is known to apply.
Calculate: (a) the average time per unit for the first 16 units; (b) the average time per unit for the first 25 units; (c) the time it takes to make the 20th unit.
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Learning Curve – Exercise 2
A firm produces 100 units and the average time per unit is 5.32 hours. A 90% learning curve applies. Required: a) Find the average time per unit if 500 units are produced. b) Find the average time per unit for the next 250 units.
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Applications of the Learning Curve Effect
The Steady State
- Eventually, the learning effect will cease and the time to make each
successive unit stabilises at a constant time per unit. This is because there is a limit to manual dexterity and/or other limiting factors come into play such as a limit on how quickly materials can be supplied.
Application of the Learning Curve Effect
- Pricing decision
- Work scheduling
- Standard setting & Budgeting
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