CORREOS, Rovic Ira A.

Mgt187 F – Operations Management

BS in Management III
Activity 5
Learning Curves
Human learning is an essential aspect in appropriating the best work system design
in the company’s operations to limit not only the general lead time but also the costs
entailed. This learning relates to how a certain task is being done with repetition by assessing
the time required to accomplish such task. The relationship between the number of
repetitions in tasks and the time per repetition is best depicted in a linear curve.
The learning curve theory is best applied in specific areas of management which
include manpower planning, procurement, pricing product and service offerings, inventory
planning, budgeting, and capacity planning (Stevenson, 2018). This theory aids managers
in making sound decisions in terms of desired output levels from standard level of inputs
which would contribute to minimized lead times and costs.

Figure 1. The learning curve.

For my paper, I opt to exemplify the application of the learning curve theory on
budgeting and inventory planning. In this instance, the firm’s production incurred high initial
cost per unit, thereby making output levels low. Whenever productivity increases, firms must
increase their level of raw materials and upgrade their production facilities to attain the new
level of demand for additional units of inventories. An increase in the production of
inventories because of these said upgrades would entail increase in usage rate on the
facilities and technologies used to manufacture inventories in view of the learning curve
theory.
Inventory planning can also mean for the purchaser of merchandise regarding
expectations for such inventory to arrive at their point of destination after finishing from the
manufacturing process.
Furthermore, the graph would produce a scallop effect on the learning curve which
indicates significant improvements in production and inventory management.
 SAMPLE SCENARIO
The labor cost to produce a certain item is $8.50 per hour. Job setup costs $50 and material
costs are $20 per unit. The item can be purchased for $88.50 per unit. The learning rate is
90 percent. Overhead is charged at a rate of 50 percent of labor, materials, and setup costs.

a. Determine the unit cost for 20 units, given that the first unit took 5 hours to
complete.

b. What is the minimum production quantity necessary to make production cost less
than purchase cost?

Given
Setup cost =$50
Material cost = $20
Purchase cost = $88.50
Learning rate = 90%

Material cost for 20 units = $20 × 20 units = $400

Labor cost = $8.50, and it requires 5 hours to produce the first unit.
Total time required to produce 20 units = 5 × 14.608= $73.04

Total time factor = 14.608

Time required to produce 20 units at 90% learning = 14.608.

Solutions to A

i. Calculating the labor cost for production of 20 units

Labor cost = 8.50×73.04 = $620.84

ii. Calculating overhead cost

Overhead cost is 50% of the labor material, and setup cost. Therefore,

Overhead cost = 0.50 x (620.84+50+400)

= 0.5 × (1070.84)

= $535.42

iii. Calculating total cost

Total cost = $535.42 +$1070.84 = $ 1606.26

iv. Finding the unit cost (Answer to A)
 Unit cost = $1606.26÷20 = $80.31

Thus, the unit cost is $80.31 per unit.

Solutions to B (Answers to B)

Answer: 10 units
The minimum production quantity was calculated using the trial-and-error method to
determine if the minimum quantity is less than the purchase cost.

Given:

Setup cost =$50

Material cost = $20

Predicted minimum number of units

Material cost for 10 minimum units = $20 x 10 minimum units = $200

Labor cost = $8.50

Total time factor for 10 units = 7.994

Minimum hours to produce 10 units = 5 hours

Total time required to produce 10 units = 5 minimum hours × 7.994 = $39.97

i. Calculating the labor cost of producing 10 units

The labor cost to produce 10 units is:

Labor cost of 10 units = $8.50 × 7.994 × 5 hours = $339.75

ii. Calculating overhead cost

Overhead cost is 50% of the labor material, and setup cost. Therefore,

Overhead cost = 0.50 x (339.75+50+200)

= 0.5 × (589.75)

= $294.875
iii. Calculating the total cost
Total cost = $294.875 + $589.75 = $884.625
iv. Calculating the unit cost
Unit cost = $884.625 / 10 units = $88.46 per unit