as worker becomes more familiar with production of new product, their avg time (+ avg. cost) will decline, exhibiting geometric relationship
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geometric formula
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uses of learning curves in (1) decision making (2) pricing (3) standard costing (4) budgeting
(1) DECISION MAKING: more accurate info/ understanding/ (2) PRICING: enables lower pricing/ penetration/ move along curve quicker/ (3) STD. COSTING: causes (F) eff. variances/ BUDGETING: causes over budgeting of lab. hrs
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estimating incremental hours (+costs)
examine difference between total hrs for various combinations of cumulative hrs
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practical advantages of learning curves
(1) DECISION MAKING: incremental costs of making extra units (2) PRICING undercut competitors in mark-up contracts (3) STD COST: realistic std. for cost control (4) BUDGETS: realistic budgets + schedules
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limitations of learning curves
(1) not always present + hard to establish (2) assume stable work conditions (no idle time/ turnover) (3) assumes motivation (4) long breaks move back up curve (5) prod. techniques evolve (6) assumed constant
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experience curves (cost not hrs) for materials/ Var OH/ Fixed OH (TAC)
cover all costs + will reduce over time due to experience (MAT= less wastage/ discounts/ economies) (VAR OH = same pattern as lab.) (FIXED OH = fall p.u. as volume increases TAC)
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experience curves achieved by...
firms that exploit growth + market share --> org. can then mass produce --> spread market costs over more units
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Other cards in this set
Card 2
Front
geometric formula
Back
.
Card 3
Front
uses of learning curves in (1) decision making (2) pricing (3) standard costing (4) budgeting
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