Explain the use of learning curve theory in budgeting and budgetary control
A.Data relating to the production of the first twelve units of a new product are as follows.
Time taken to produce the first unit 15 hours
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Order Paper NowCumulative time taken to produce first 12 units 81 hours
The percentage learning effect is closest to
(A) 45%
(B) 55%
(C) 70%
(D) 80%
(E) 90%.
B. ‘The learning curve is a simple mathematical model but its application to management
accounting problems requires careful thought.’
Requirements
Having regard to the above statement:
(a) explain the ‘cumulative average-time’ model commonly used to represent learning curve effects.
(b) sketch two diagrams to illustrate, in regard to a new product, the relative impacts of 70,
80 and 90 per cent learning curves on:
● cumulative average hours per unit,
● cumulative hours taken.
(c) explain the use of learning curve theory in budgeting and budgetary control; explain the
difficulties that the management accountant may encounter in such use.
(d) compare and contrast the learning curve with the experience curve; explain the circumstances
when each may be most relevant.
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