1. CIMA P2 Advanced Management Accounting
First Intro slide – change details to your own
For exams in 2016
江西财经大学会计学院 吉伟莉

2. Chapter 3 Cost planning Learning curve Life cycle costing
First Intro slide – change details to your own

3. Learning curve 1
Theory
As cumulative output doubles, the cumulative average time per unit produced falls to a fixed percentage of the previous cumulative average time per unit
When does learning curve theory apply?
Product made largely by labour effort
Brand new or relativity short-lived product
Complex product made in small quantities for special orders

4. Learning curve 2
Cumulative average unit time for the total units to date
Cumulative total costs/time
Total units of output produced to date
Total units of output produced to date

5. Learning curve 3
Note that cumulative average time = average time per unit for all units produced so far, back to and including the first unit made

6. Learning curve 4 Formula for the learning curve
The learning effect can be shown as a learning curve

7. What costs are affected by the learning curve? Material costs
Direct labour time and costs
Variable overhead costs
Fixed overhead costs × √ √ ×

8. Learning curve 6 Where the learning curve might impact
Sales projections, advertising expenditure, delivery date commitments
Recruitment of new labour
Calculation of productivity bonus
Work scheduling and overtime decisions
Budgeting with standard costs
Cash flow projections (reducing unit variable costs)
Market share

9. Learning curve 7 Where learning curve theory can be used
To calculate the marginal (incremental) cost of making extra units of a product
To quote selling prices for a contract, where prices are calculated at a cost plus a percentage mark-up for profit
To prepare realistic production budgets and more efficient production schedules
To prepare realistic standard costs for cost control purposes

10. Limitations in machine efficiency
Learning curve 8
The learning effect might cease due to:
Limitations in machine efficiency
Limitations in workforce capacity
“Go slow” agreements

11. Learning curve 9 Limitations of learning curve theory
The effect is not always present
It assumes stable conditions which allow learning to take place
It assumes a certain degree of motivation amongst employees
Breaks between repeating production of an item must not be too long or workers will forget and learning will have to begin again
It may be difficult to obtain enough accurate data to decide what the learning factor is
Learning will eventually cease