Learning curve theory, Managerial Accounting

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.

 

1129_curve1.jpg

404_curve2.jpg


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

 

 

Posted Date: 12/5/2012 6:43:31 AM | Location : United States







Related Discussions:- Learning curve theory, Assignment Help, Ask Question on Learning curve theory, Get Answer, Expert's Help, Learning curve theory Discussions

Write discussion on Learning curve theory
Your posts are moderated
Related Questions
What is the Flexible budgets  A flexible budget consists of a series of budgets for different level of activity. It therefore varies with the level of activity attained. A flex

ABM(Activity based management): ABM system is primary source of information for AM as a part of ABM identify value added and non-value added activity and management are also to

State (or select) the dependent variable (Y) Will the CER be employed to estimate price, labor hours, cost, material cost, or some other measure of cost? Will the CER be employ

A cash budget is one of the main important devices to plan and control cash payments and receipts. In preparation of a cash budget the subsequent points are considered. Cred

Suppose the spot price for Euro is $1.30, the futures price for delivery in 6 months is $ 1.29675. Assume that the 6 month borrowing/lending rate in Euro is 1.5 percent (annually,

Explains how activity –based techniques can be used to improve performance

Project C would involve a current outlay of $50,000 on equipment and $15,000 on working capital. The investment in working capital would be increased to $21,000 at the end of the f

Coolidge Company estimates that its production workers will work 125,000 direct labor hours during the upcoming period and that overhead costs will amount to $500,000. What predete


Advantages of Simulation 1) It can be used in areas where analytical techniques are not available or would be too complex. 2) Constructing the model inevitably must involve