LEARNING CURVE THEORY
The first time a new operation is performed both workers and operating procedures are untried but as the operation is replaced the workers becomes more familiar with the work so that less hours are required. This phenomenon is termed as the learning curve effect.
This is also referred to as improvement curve theory. It occurs when new production methods are introduced, new product s (either goods or services) are made or when new employees are hired. It is based on the proposition that as workers gain experience in a task, they need less time to complete the job and productivity increases.
The learning curve theory affects not only direct labour costs but also impacts direct labour related costs such as supervision, and direct material costs due to reduced spoilage and waste as experience is gained.
The time to perform many operations begins slowly and speeds up as employees become more skilled. Gradually, the time needed to complete an operation becomes progressively smaller at a constant percentage. Since this rate of improvement has a regular pattern, a learning curve can be drawn (see diagrams below) to estimate the labour hours required as workers become more familiar. These curves are also referred to as progress functions or experience curves.
The effect of experience on cost is reviewed by a learning ratio (improvement ratio or learning rate) defined by the following;Learning ratio = Average labour cost for the first 2x units Average labour cost for the first x units