AC1103

Module 5:
Learning Curve Analysis

Instructor: Claire Angela Rubia, CPA, CMA

What is Learning Curve?
Learning curves are based on the premise that people and organizations become
better at their tasks as the tasks are repeated.
Introduction
• The learning curve is based on doubling of production: When production doubles,
the decrease in time per unit affects the rate of the learning curve
• Learning curve is measured using the cumulative average-time learning model
(also called the Wright method or traditional method)

Example: If the learning curve is an 80% rate, the second unit takes 80% of the time of
the first unit, the fourth unit takes 80% of the time of the second unit, and the eighth
unit takes 80% of the time of the fourth unit, and so forth
Practice
The first unit of a particular product took 10 labor-hours, and a 70% learning curve is
present. How many hours does it require to produce the fourth unit?

Hours required for unit 4 = T x L

= 10 x 0.702
= 4.9 hours
Learning Curves in Services and
Manufacturing
• Different organizations, different products have different learning curves
• The rate of learning varies depending on the quality of management and the
potential of the process and product
• Any change in process, product, or personnel disrupts the learning curve
• Learning curves are useful for a variety of purposes including
1) Internal – labor forecasting, scheduling, establishing costs and budgets
2) External – supply-chain negotiations
3) Strategic – evaluation of company and industry performance, including costs
and pricing
Applying the Learning Curve

• Arithmetic Approach – simplest approach to learning curve

problems

• Logarithmic Approach

• Learning Curve Coefficient Approach

Arithmetic Approach
We can use this approach when we wish to find the hours required to produce N units
and N is one of the doubled values

Example:
1 unit = 100 hours, 80% learning curve rate

Nth Unit Produced Hours for Nth Unit

1 100
2 80 = 100 x 80%
4 64 = 80 x 80%
8 51.2 = 64 x 80%
16 41 = 51.2 x80%
Logarithmic Approach
T h e l o g a r i t h m i c a p p r o a c h a l l o w s u s t o d e t e r m i n e l a b o r f o r a n y u n i t , T n, b y t h e f o r m u l a
Logarithmic Approach
Example:
Learning-Curve Coefficient Approach
The learning-curve coefficient, C, depends on both the learning rate and the unit of
interest
Table E.3
Learning-Curve Coefficient Approach
Sample Problem:

1. How many hours does it take to produce the fourth unit?

2. How much does it cost to produce the fourth unit?
3. How much is the total time required to produce the 4 units?
Learning-Curve Coefficient Approach
Solution:
1. How many hours does it take to produce the fourth unit?

1. How much does it cost to produce the fourth unit?

2. How much is the total time required to produce the 4 units?

Limitations of Learning Curves
• Because learning curves differ from company to company, as well as industry to
industry, estimates for each organization should be developed rather than applying
someone else’s
• Learning curve are often based on the time necessary to complete early units;
therefore, those times must be accurate. As current information becomes available,
reevaluation is appropriate
• Any changes in personnel, design, or procedure can be expected to alter the
learning curve, causing the curve to spike up for a short time, even if it is going to
drop in the long run
• While workers and process may improve, the same learning curves do not always
apply to indirect labor and material
• The culture of the workplace, as well as resource availability and changes in the
process, may alter the learning curve
 Problem 1
A particular manufacturing job is subject to an estimated 60% learning curve. The first
unit required 20 labor hours to complete.

1. A doubling of production will reduce the cumulative average unit completion time
by?
2. What is the cumulative average time per unit after four units are completed?
3. What is the cumulative (total) time required to produce 4 units?
 Solution to Problem 1

1. A doubling of production will reduce the cumulative average unit completion time
by? 40%

2. What is the cumulative average time per unit after four units are completed?

7.2 hours

3. What is the cumulative (total) time required to produce 4 units?

28.8 hours
 Problem 2
The first unit of a manufacturing job required 50 labor hours to complete. When
production was doubled, the cumulative average time to complete the two units was
40 hours.

1. The manufacturing job’s learning curve is?

2. Assuming the learning curve continues, the cumulative (total) time required to
produce 8 units is?
3. What is the time required to produce the second unit if the first unit required 50
hours to complete?
 Solution to Problem 2

1. The manufacturing job’s learning curve is? 80%

2. Assuming the learning curve continues, the cumulative (total) time required to
produce 8 units is? 204. 8 hours

3. What is the time required to produce the second unit if the first unit required 50
hours to complete? 30 hours
 Problem 3
A learning curve of 70% assumes direct labor costs are reduced by 30% for each
d o u b l i n g o f o u t p u t . W h a t i s t h e c o s t o f t h e 8 th u n i t p r o d u c e d a s a n a p p r o x i m a t e
percentage of the first unit produced?
 Solution to Problem 3
W h a t i s t h e c o s t o f t h e 8 th u n i t p r o d u c e d a s a n a p p r o x i m a t e p e r c e n t a g e o f t h e f i r s t u n i t
produced? 34.30%

0.343/1 = 34.30%