Learning Curve
Introduction
Learning curve theory allows projection of the final average unit cost or time at any stage of production. Cost of direct labour, indirect labour, power and similar costs depend on the amount of time required and thus as learning takes place . These costs per unit tend to decline. In the initial stages of production, therefore, the costs would be high which gradually come down till finally the learning process is completed. In the establishment of target profit through cost volume-profit analysis or as a return on capital employed, the effect of the learning curve on costs related to the budgeted volume should be incorporated in the budget plan. If this is done, the estimated rate of return in the early stages of estimated production would be lower but will pick up as the production volume increases.
Learning co-efficient
The learning co-efficient is applicable when production volume is doubled. Apart from this simple calculation one can apply the usual learning curve model as follow

y = a*x*pow(b)

where y = the average time per unit for x units, a = the time for the first unit, x = the cumulative number of units, b = the learning coefficient = log of learning / log 2

log y = log a + b log x ( Apply this one when log values are given in the problem )

Again , total time = x * y = x * a*x*pow(b) = a *x* pow(1+ b)

Use of learning curve
  • Learning curve is now being widely issued in business. Some of the uses are as follows:
  • Where applicable the learning curve suggest grate opportunities for cost reduction to be achieved by improving learning.
  • The learning curve concept suggest a basis for correct staffing in continuously expanding production. The curve shows that the work force need not be increased at the same rate as the prospective output.
  • Learning curve concept provides a means of evaluating the effectiveness of training programs.
  • Learning curve is frequently used in conjunction with establishing bid price for contracts.
  • As employees become more efficient, the rate of production increases and so more materials are needed, the work-in-progress inventory turns over faster, and finished goods inventory grows at an accelerated rate.
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