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  • 29/08/2015 Thelearningrateandlearningeffect|F5PerformanceManagement|ACCAQualification|Students|ACCAGlobal|ACCAGlobal

    http://www.accaglobal.com/sg/en/student/examsupportresources/fundamentalsexamsstudyresources/f5/technicalarticles/thelearningrateandlearni 1/4

    Home > Students > Examresources > Fundamentalslevel > F5PerformanceManagement > Technicalarticles

    THE LEARNING RATE AND LEARNING EFFECT

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    UnderthenewexamstructureforPaperF5,learningcurveswillcontinuetobeexamined,theonlychangebeingthatquestionsmayvaryalittlebitmorethantheyhavedoneinthepast.

    TheDecember2013syllabusreadsestimatethelearningeffectandapplythelearningcurvetoabudgetaryproblem,includingcalculationsonsteadystates.Thusfar,thishasbeeninterpretedtomeanthatthelearningratewillalwaysbegiveninaquestionandquestionswillfocuspurelyon'estimatingthelearningeffect'thatis,calculatingthelabourtimeandusuallycostforagivenprocess.Historically,therequirementsofquestionshavebeensuchithasbeennecessaryforcandidatestousethealgebraicmethod,applyingthelearningcurveformulatoproblems,ratherthanthetabularapproach.

    Bothmethods,however,haveactuallybeenexaminableunderthesyllabus,andforteachingpurposes,thetabularapproachisalwaysagoodstartingpointtodemonstratehowthelearningcurveeffectactuallyworks.

    InthesyllabusforDecember2014onwards,thewordslearningrateandlearningeffectwillbeusedratherthansimplylearningeffect.Thiswordinghasbeenchangedinordertomakeitclearthatcandidatescouldnowbeaskedtocalculatelearningratestoo.

    Thepurposeofthisarticleis,however,twofold:first,itistosummarisethehistoryofthelearningcurveeffectandhelpcandidatesunderstandwhyitisimportant.Second,itistolookatwhatpastlearningcurvequestionshaverequiredofcandidatesandtoclarifyhowfuturequestionsmaygobeyondthis.

    ABRIEFHISTORYOFTHELEARNINGCURVE

    Inpractice,itisoftenfoundthattheresourcesrequiredtomakeaproductdecreaseasproductionvolumesincrease.Itcostsmoretoproducethefirstunitofaproductthanitdoestoproducetheonehundredthunit.Inpart,thisisduetoeconomiesofscalesincecostsusuallyfallwhenproductsaremadeonalargerscale.Thismaybeduetobulkquantitydiscountsreceivedfromsuppliers,forexample.Thelearningcurve,effect,however,isnotaboutthisitisnotaboutcostreduction.Itisahumanphenomenonthatoccursbecauseofthefactthatpeoplegetquickeratperformingrepetitivetasksoncetheyhavebeendoingthemforawhile.Thefirsttimeanewprocessisperformed,theworkersareunfamiliarwithitsincetheprocessisuntried.Astheprocessisrepeated,however,theworkersbecomemorefamiliarwithitandbetteratperformingit.Thismeansthatittakesthemlesstimetocompleteit.

    Thefirstreportedobservationofthelearningcurvegoesasfarbackas1925whenaircraftmanufacturersobservedthatthenumberofmanhourstakentoassembleplanesdecreasedasmoreplaneswereproduced.TPWrightsubsequentlyestablishedfromhisresearchoftheaircraftindustryinthe1920sand1930sthattherateatwhichlearningtookplacewasnotrandomatallandthatitwasactuallypossibletoaccuratelypredicthowmuchlabourtimewouldberequiredtobuildplanesinthefuture.DuringWorldWarII,USgovernmentcontractorsthenusedthelearningcurvetopredictcostandtimeforshipandplaneconstruction.Gradually,privatesectorcompaniesalsoadopteditafterthewar.

    ThespecificlearningcurveeffectidentifiedbyWrightwasthatthecumulativeaveragetimeperunitdecreasedbyafixedpercentageeachtimecumulativeoutputdoubled.Whileintheaircraftindustrythisrateoflearningwasgenerallyseentobearound80%,indifferentindustriesotherratesoccur.Similarly,dependingontheindustryinquestion,itisoftenmoreappropriatefortheunitofmeasurementtobeabatchratherthananindividualunit.

    Thelearningprocessstartsassoonasthefirstunitorbatchcomesofftheproductionline.Sinceadoublingofcumulativeproductionisrequiredinorderforthecumulativeaveragetimeperunittodecrease,itisclearlythecasethattheeffectofthelearningrateonlabourtimewillbecomemuchlesssignificantasproductionincreases.Eventually,thelearningeffectwillcometoanendaltogether.YoucanseethisinFigure1below.Whenoutputislow,thelearningcurveisreallysteepbutthecurvebecomesflatterascumulativeoutputincreases,withthecurveeventuallybecomingastraightlinewhenthelearningeffectends.

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  • 29/08/2015 Thelearningrateandlearningeffect|F5PerformanceManagement|ACCAQualification|Students|ACCAGlobal|ACCAGlobal

    http://www.accaglobal.com/sg/en/student/examsupportresources/fundamentalsexamsstudyresources/f5/technicalarticles/thelearningrateandlearni 2/4

    Figure1

    Thelearningcurveeffectwillnotalwaysapply,ofcourse.Itflourisheswherecertainconditionsarepresent.Itisnecessaryfortheprocesstobearepetitiveone,forexample.Also,thereneedstobeacontinuityofworkersandtheymustntbetakingprolongedbreaksduringtheproductionprocess.

    THEIMPORTANCEOFTHELEARNINGCURVEEFFECT

    Learningcurvemodelsenableuserstopredicthowlongitwilltaketocompleteafuturetask.Managementaccountantsmustthereforebesuretotakeintoaccountanylearningratewhenthey

    arecarryingoutplanning,controlanddecisionmaking.Iftheyfailtodothis,seriousconsequenceswillresult.Asregardsitsimportanceindecisionmaking,letuslookattheexampleofacompanythatisintroducinganewproductontothemarket.Thecompanywantstomakeitspriceasattractiveaspossibletocustomersbutstillwantstomakeaprofit,soitpricesitbasedonthefullabsorptioncostplusasmall5%markupforprofit.Thefirstunitofthatproductmaytakeonehourtomake.Ifthelabourcostis$15perhour,thenthepriceoftheproductwillbebasedontheinclusionofthatcostof$15perhour.Othercostsmaytotal$45.Theproductisthereforereleasedontothemarketatapriceof$63.Subsequently,itbecomesapparentthatthelearningeffecthasbeenignoredandthecorrectlabourtimeperunitshouldisactually0.5hours.Withoutcrunchingthroughthenumbersagain,itisobviousthattheproductwillhavebeenlaunchedontothemarketatapricewhichisfartoohigh.Thismaymeanthatinitialsalesaremuchlowerthantheyotherwisewouldhavebeenandtheproductlaunchmayfail.Worsestill,thecompanymayhavedecidednottolaunchitinthefirstplaceasitbelieveditcouldnotofferacompetitiveprice.

    Letusnowconsideritsimportanceinplanningandcontrol.Ifstandardcostingistobeused,itisimportantthatstandardcostsprovideanaccuratebasisforthecalculationofvariances.Ifstandardcostshavebeencalculatedwithouttakingintoaccountthelearningeffect,thenallthelabourusagevarianceswillbefavourablebecausethestandardlabourhoursthattheyarebasedonwillbetoohigh.Thiswillmaketheiruseforcontrolpurposespointless.

    Finally,itisworthnotingthattheuseoflearningcurveisnotrestrictedtotheassemblyindustriesitistraditionallyassociatedwith.Itisalsousedinotherlesstraditionalsectorssuchasprofessionalpractice,financialservices,publishingandtravel.Infact,researchhasshownthatjustunderhalfofusersareintheservicesector.

    HOWLEARNINGCURVESHAVEBEENEXAMINEDINTHEPAST

    ThelearningcurveeffecthasregularlybeenexaminedinPaperF5.Forexample,inDecember2011,itwasexaminedinconjunctionwithlifecyclecosting.Candidateswereaskedtocalculatearevisedlifecyclecostperunitaftertakingintoaccountthelearningeffect.Thisinvolvedworkingouttheincrementallabourtimetakentoproducethefinal100thunitmadebeforethelearningeffectended.Thisisafairlycommonexamrequirementwhichtestscandidatesunderstandingofthedifferencebetweencumulativeandincrementaltimetakentoproduceaproductandtheapplicationofthelearningcurveformula.Itisworthmentioningatthispointthatyoushouldneverroundlearningcurvecalculationstolessthanthreedecimalplaces.Insomequestions,wherethelearningeffectissmall,overroundingwillleadtoacandidatewipingouttheentirelearningeffectandthenthequestionbecomespointless.

    Thelearningcurveformula,asshownbelow,isalwaysgivenontheformulasheetintheexam.

    Y=axb

    WhereY=cumulativeaveragetimeperunittoproducexunitsa=thetimetakenforthefirstunitofoutputx=thecumulativenumberofunitsproducedb=theindexoflearning(logLR/log2)LR=thelearningrateasadecimal

    Whileavalueforbhasusuallybeengiveninpastexamsthereisnoreasonwhythisshouldalwaysbethecase.Allcandidatesshouldknowhowtouseascientificcalculatorandshouldbesuretotakeoneintotheexamhall.

    InJune2013,thelearningeffectwasagainexaminedinconjunctionwithlifetimecosting.Again,ashashistoricallybeenthecase,thelearningratewasgiveninthequestion,aswasthevalueforb.

    BackinJune2009,thelearningcurveeffectwasexaminedinconjunctionwithtargetcosting.Onceagain,thelearningratewasgiven,andavalueforbwasgiven,butthistime,anaveragecostforthefirst128unitsmadewasrequired.Itwasafterthispointthatthelearningeffectended,sothequestionthenwentontoaskcandidatestocalculatethecostforthelastunitmade,sincethiswasgoingtobethecostofmakingoneunitgoingforwardinthebusiness.

    Itcanbeseen,justfromtheexamplesgivenabove,thatlearningcurvequestionshavetendedtofollowafairlyregularpatterninthepast.Theproblemwiththisisthatcandidatesdontalwaysactuallythinkaboutthecalculationstheyareperforming.Theysimplypractisepastpapers,learnhowtoanswerquestions,

  • 29/08/2015 Thelearningrateandlearningeffect|F5PerformanceManagement|ACCAQualification|Students|ACCAGlobal|ACCAGlobal

    http://www.accaglobal.com/sg/en/student/examsupportresources/fundamentalsexamsstudyresources/f5/technicalarticles/thelearningrateandlearni 3/4

    andneverreallythinkbeyondthis.Intheworkplace,whenfacedwithcalculationsinvolvingthelearningeffect,candidatesmaynotbeabletotacklethem.Intheworkplace,thelearningratewillnotbeknowninadvanceforanewprocessandsecondly,evenifithasbeenestimated,differencesmaywellarisebetweenexpectedlearningratesandactuallearningrateexperienced.Therefore,itseemedonlyrightthatfuturequestionsshouldexaminecandidatesabilitytocalculatethelearningrateitself.Thisleadsusontothenextsectionofthearticle.

    HOWTHELEARNINGEFFECTANDLEARNINGRATESMAYBEEXAMINEDFROMDECEMBER2014ONWARDS

    Obviously,thelearningeffectcouldbeexaminedexactlyasithasbeeninpastexams,withcandidatesbeingaskedtocalculatethetimetakentoproduceanindividualunitoranumberofunitsofaproducteitherwhenthelearningcur

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