Practice Problems Learning Curve

1. Happy Company intends to begin production of its new product. An 80% learning curve is applicable to Happy company’s
operations. It expects to incur 500 direct labor hours to produce the first unit. How many direct labor hours should it take to
produce the third and the fourth units?

Cumulative number of units Direct labor hours

1 500
2 400 (500 X 80%)
4 320 (400 x 80%)
8 256 (320 x 80%)
Time to produce 4 units (4 x 320) 1,280 hours

Less: Time to produce 2 units (2 x 400) 800 hours

Time to produce the 3rd and 4th units 480 hours

2. Joyful Company has an estimated 50 hours to complete the first batch of products. A 70% learning curve is expected. If labor
is paid P80 per hour, what is the target labor cost for four batches of product?

Cumulative number of batches Labor hours

1 50
2 35 (50 x 70%)
4 24.5 (35 x 70%)
8 17.15 (24.5 x 70%)

0.72 x 50 x 4 = 98 total time required to complete 4 batches.

Target labor cost for 4 batches of product = 98 hours x P80

= P7,840

3. Bliss Company expects a 90% learning curve. The first batch of a new product required 600 hours. How many hours on the
average should the first four batches take?

Cumulative number of batches Labor hours

1 600
2 540 (600 x 90%)
4 486 (540 x 90%)
8 437.4 (486 x 90%)

0.92 x 600 = 486 hours on the average for first 4 batches

4. Superfast Company currently purchases a component of one of its products at P200 per unit. Superfast needs 8,000 units of
the component this coming year. The product will be redesigned so the component will not be needed beyond the coming
year. The production manager believes that Superfast could make the component with the following costs for the first batch
of 1,000 units.
Direct materials P150,000
Direct labor and variable overhead 170,000
Total variable cost P320,000

Making the component involves no incremental fixed costs because Superfast could use the existing machinery. The
production manager expects 85% learning curve on direct labor and variable overhead. Consider a batch to be 1,000 units.

Compute the effect on the company’s income if Superfast has to manufacture the component.

Cumulative number of batches Labor hours

1 170,000
2 144,500
4 122,825
8 104,401.25

320,000 – 254,401.25 = P65,598.75

Answer: The company will save P65,598.75.