Finals HO1 Learning Curve

Learning Curve
The learning curve is a mathematical model illustrating how the cost per unit or the time required
for each unit of production tends to decrease as managers, workers, or the organization as a
whole gains experience and efficiency through practice and repetition. This model provides
valuable insights into how productivity improves over time due to accumulated experience and
the efficiencies that arise from this experience. Understanding the learning curve allows
organizations to anticipate reductions in time and cost, helping in forecasting, planning, and cost
management.
In essence, the learning curve represents how experience gained from increased production
translates to improved productivity. It demonstrates a phenomenon in which, as cumulative output
doubles, the average direct labor input time per unit reduces by a consistent percentage. This
effect generally manifests at a decreasing rate as production scales, meaning that while
significant efficiencies occur early on, the incremental gains lessen as experience accumulates.
The learning curve is quantified by a percentage that reflects the reduction in time required to
perform a given task with each doubling of cumulative production output. For example, if a
company experiences an 80% learning curve, it indicates that every time the total production
volume doubles, the time required to produce a single unit is reduced by 20%. The "80%" figure
here represents the retained time (100% - 20% reduction) required per unit with each doubling.
This principle is particularly impactful in manufacturing and other labor-intensive industries, where
routine and repetition enable workers to perform tasks faster and more accurately. However, this
trend is most notable in the early stages of production; over time, the curve plateaus, reflecting
that further significant improvements become more challenging as processes near their optimal
efficiency.
Exercises
Exercise 1
Prince Guma has a manufacturing job which is subject to an estimated 80% learning curve.
The first unit required 15 labor hours to complete.
Required:
1. What is the cumulative average time per unit after four units are completed? 9.60 hours
per unit
2. What is the cumulative (total) time required to produce 4 units? 38.40 hours
3. By how much does the cumulative average unit completion time reduce? 20%
Exercise 2
The first unit of Oner Winner manufacturing job required 40 labor hours to complete. When
production was doubled, the cumulative average time per unit to complete the two units was
30 hours (each).
Required:
1. What was the manufacturing job's learning curve? 75%
2. What is the cumulative total time required to produce 8 units. 135 hours
3. What is the time required to produce the second unit? 20 hours.
Exercise 3. Batches
The average labor cost per unit for the first batch produced by a new process discovered by
the world-renowned statistician Zeus is Php150. The accumulative average labor cost after the
Prepared by: PRince

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second batch is Php120 per product. Using a batch size of 100, and assuming the learning
curve continues, how much would be the total labor cost of four batches? Php38,400.
Key insights from the learning curve include:

1. Initial Efficiency Gains: The most substantial time and cost savings occur early in the
production process. As workers and managers become familiar with the tasks and
methods, they identify opportunities to eliminate waste and streamline operations.
2. Diminishing Returns: As production continues and output increases, the rate of
improvement begins to decrease, and eventually, improvements in efficiency are marginal.
This flattening of the curve reflects the natural limits of human and mechanical efficiency.
3. Strategic Planning Tool: The learning curve aids companies in making accurate
forecasts and better pricing strategies. It can be used to predict future production costs,
allowing companies to set competitive pricing while still maintaining profitability.
4. Performance Measurement: Tracking performance against a learning curve can help
organizations measure and assess improvements over time, encouraging a focus on
continued refinement and identifying when efficiency is reaching its limits.
The learning curve model is a powerful tool in fields where production volume and
efficiency play a critical role in profitability, such as manufacturing, software development,
and service-based industries. By using this model, managers can anticipate reductions in
labor costs and time, set realistic production goals, and adjust resource allocation
effectively.
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Finals HO1 Learning Curve

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Learning Curve

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Key insights from the learning curve include:

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