1. 1 The average time per task declines by a constant percentage each time the quantity of tasks done doubles. There is often a systematic relationship between experience in performing a task and the time required to do it. Learning Curves

2. 2 Types of Learning Curves Cumulative Average-Time Learning Model – cumulative average time per unit declines by a constant percentage each time the cumulative quantity of units produced doubles Incremental Unit-Time Learning Model – incremental time needed to produce the last unit declines by a constant percentage each time the cumulative quantity of units produced doubles

3. 3 Berry Co. makes products requiring labor that follows an 80 percent learning rate. If the first unit of such a product requires 10 hours, what is the average time for 16 units of this product? An 80 percent learning rate: the average time required to make 2 units is 80 percent of the time for 1 unit and the average time for 4 units is 80 percent of the time for 2 units, etc. Effect of Learning on Cost Behavior

4. 4 The graphic presentation of the learning phenomenon is called the learning curve. Cumulative Average-Time Learning Model

5. 5 Learning Curve Cumulative Production Output Average Labor Time per Unit Learning effects are large initially. Learning effects become smaller, eventually reaching expected final time.

6. 6 Cumulative Production Output Average Labor Time per Unit This is used to help determine investment required. This is used to estimate ongoing results.

7. 7 Learning Curve Formula

8. 8 Question for Discussion 2   Time to produce the first unit = 100 minutes Learning factor = ln(0.80)/ln2 = -0.32193 1.What is the cumulative average time to produce 5 units? 2.What is the total time to produce 5 units? 3.What is the time it took to produce the 5 th unit?

9. 9 Incremental Unit-Time Learning Model Using the example of Berry Co. and using the incremental unit-time learning model