Learning Curve

1
Learning Curve

• Defined as
• The mathematical expression of the phenomenon
  that when complex and labour intensive procedures
  are repeated, unit labour times tend to decrease
  at a constant rate.
• CIMA Official Terminology

2
The Relevance of the LC Effects

• The learning curve can be used in the following
  situations
• To calculate the marginal (incremental) cost of
  making extra units of a product
• To quote selling prices for a contract where
  prices are calculated at cost plus a mark up
  for profit.
• To prepare realistic production budgets and more
  efficient production schedules.
• To prepare realistic standard costs for cost
  control purposes.

3
Limitations of Learning Curve Theory

• Not always present
• Assumes stable conditions
• Assumes motivation
• Breaks between repeating an item are not long.
• Difficult to obtain accurate data
• Production techniques change hence difficult to
  apply
• Learning will cease after constant repetition