lc - cima m learning

7/30/2019 Lc - Cima m Learning

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CIMA defines Learning Curve as The mathematical expression of the phenomenonthat, when complex and labour intensive processes are repeated for multiple times or cycles, then time taken to complete one cycle tend to decrease. The learning curvemodel mathematically captures this reduction in cycle time over cumulative cycles.

The theory of the learning curve is based on the simple idea that the time required toperform a task decreases as workers gain experience. The basic concept is, that thecumulative average time of a performing task decreases at a constant rate ascumulative output doubles. It is also known as Learning Rate or Experience Curve.

Example

In a 80% Learning curve, the cumulative average time will drop to 80% of the previousvalue ( Drop by 20% of the previous time) each time the Cumulative output doubles.

A company always want to have a lower learning curve. A 70% Learning curve is alwaysbetter than a 90% learning curve. However, Learning curves are inherent in differentindustries.


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Y= Y = The cumulative average time or cost per unitX = The cumulative number of units produced from 1 st unita = Time or cost required to produce the first unitb = Learning co-efficient (Log of learning rate / Log of 2)

The formula to calculate cumulative total hours or cost is:

Total Time (Y)= +


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It is useful to note the following coefficients which are frequently tested.

Learning Curve Learning Coefficient (b) b+1

90% -0.1520 0.8480

80% -0.3220 0.6780

70% -0.5146 0.4854


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A process has a learning curve of 80%. The first unit of production took 10 Hours.

Calculate :

1) Cumulative Average time taken for 15 units.

2) Cumulative time for 20 units.


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1) Y= Y= 10 15 .3 Y = 4.181 Hours

2) Y= + Y= 10 20 .678

Y = 76.225 Hours


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The Theory of Learning Curve is based on the following Assumptions:

Same Working Conditions through out the put.

No Labour Turnover.

No changes in Material and other Tools.

Constant employee moral.

The drop in efficiencies during breaks is negligible (When breaks are taken, the LearningCurve takes a jerk).

If the above assumptions are not there, the Learning Curve Calculation will beincorrect.


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Preparing Cost Estimates

Bidding Special Orders

Setting Labour Standards

Scheduling(Planning) labour requirements

Evaluating labour performance Performance Appraisal

Setting Incentive Wages

Budgeting


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Problems in determining the accurate learning rate ?

Not having continuous output

Design Changes

Output processes being less labour intensive

Non existence of stable conditions

Effects on motivation

Product redesign and re-development

If any of the above takes place, the Learning curve will be wrong again.


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When the learning curve reaches maturity, the time taken for each unit remainsconstant.

Post Learning

Learning Curve

Time TakenPer Unit

CumulativeProduction


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If an incorrect learning curve is used for budgeting purposes, there will either be

negative or positive labour efficiency variances which can distort the real picture.

It is important first to correct the planning errors in these situations before realoperational variances are calculated.

If a learning curve of 70% is used when a realistic rate would have been 80%, it will

obviously give an adverse variance without it being the inefficiency of labour.

If a learning curve of 80% is used when a realistic rate would have been 70%, it willobviously give a favorable variance without it being the improved performance of labour.


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Industry Learning Curve

Aerospace 85%

Shipbuilding 80-85%

Complex Machine tools 75-85%

Repetitive electronic Manufacturing 90-95%

Repetitive Machining 90-95%

Repetitive Electrical operations 75-85%

Repetitive welding operations 90%


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MAY 2012 QS 1

A company is developing a new product. During its expected life it is expected that 8,000

units of the product will be sold for $90 per unit. The direct material and other non-labourrelated costs will be $45 per unit throughout the life of the product.

Production will be in batches of 1,000 units throughout the life of the product. The directlabour cost is expected to reduce due to the effects of learning for the first fourbatches produced. Thereafter the labour cost will remain at the same cost per batch as the

4th

batch.

The direct labour cost of the first batch of 1,000 units is expected to be $40,000 and a 90%learning effect is expected to occur. There are no fixed costs that are specific to the product.Required:

(i) Calculate the average direct labour cost per batch of the first four batches.(2 marks)

(ii) Calculate the direct labour cost of the 4 th batch.(2 marks)

(iii) Calculate the contribution earned from the product over its lifetime.(2 marks)

Note: The learning index for a 90% learning curve = -0.152


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(i)Average cost for 4 batches:y = axby = $40,000 x 4-0.152= $32,400

(ii)The total cost for the 4 batches = 4 x $32,400

= $129,600Average cost for 3 batches:y = axby = $40,000 x 3-0.152= $33,848The total cost for 3 batches = 3 x $33,848 = $101,544

Cost for 4th

batch = $28,056

(iii)Total labour cost over the products life = $129,600 + (4 x $28,056) = $241,824Sales less non labour related cost over the products life = 8,000 x ($ 90-$45) = $360,000CONTRIBUTION $118,176


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P2 March 13


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