Accounting Q&A · Cost and Management Accounting · Topic 27
Try each question before revealing the answer.
25 short-answer questions. Try each question before revealing its answer.
Worked example
The first unit takes 100 hours. With an 80% cumulative-average learning curve, average time is 80 hours at two units and 64 at four. Total time for the first four units is 256 hours.
Core concepts
1. What is a learning curve?
A model of how labour time or another input changes as cumulative experience grows.
2. What does an 80% cumulative-average learning rate mean?
When cumulative output doubles, cumulative average time per unit becomes 80% of its prior value.
3. Does an 80% rate mean time drops by 80%?
Average time falls by 20% at each doubling in this model.
4. What is cumulative average time?
Total time for all units produced to date divided by their number.
5. What is incremental time?
The additional time required for a particular unit or batch.
6. How do you get cumulative total time?
Multiply cumulative average time by cumulative units.
7. How do you get time for a later batch?
Subtract total time before the batch from total time after it.
8. What is the unit-time model?
A separate model in which the time for the individual unit follows the learning relationship.
9. Why identify the model before calculating?
Cumulative-average and unit-time models give different answers.
10. What causes learning?
Practice, better methods, improved coordination and fewer errors can reduce time.
Worked applications
11. The first unit takes 50 hours and the cumulative-average rate is 80%. What is the average at two units?
40 hours.
12. What is total time for those first two units?
80 hours.
13. What is time for the second unit alone?
30 hours, calculated as 80 less 50.
14. What is the cumulative average at four units?
32 hours.
15. What is total time at four units?
128 hours.
16. How much time is spent on units three and four together?
48 hours, calculated as 128 less 80.
17. What is their labour cost at 20 per hour?
960.
18. If average time is 60 at two units and 51 at four, what is the rate?
85% because 51 divided by 60 is 0.85.
19. What is the exponent in the common power model?
The logarithm of the learning rate divided by the logarithm of two.
Review and exam practice
20. How is that model written?
Cumulative average time equals first-unit time multiplied by cumulative output raised to the learning exponent.
21. What can interrupt learning?
Design changes, staff turnover, long breaks or equipment changes.
22. Why might learning level off?
Further practice eventually yields limited savings or physical constraints dominate.
23. Why keep materials assumptions separate?
A labour learning rate does not automatically apply to material usage or machine time.
24. How does learning affect quotations?
Later units may use less labour, so estimate the full order rather than multiplying first-unit time.
25. What should a learning forecast document?
The model, rate, relevant output range, labour rate and conditions that may change the curve.