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Article: Management accounting--decision management: the learning curve equation has a number of applications in the manufacturing sector. Fortunately, the formula itself is fairly straightforward to learn for paper P2.(Study Notes)
- Article from:
- Financial Management (UK)
- Article date:
- April 1, 2005
- Author:
CopyrightCOPYRIGHT 2005 Chartered Institute of Management Accountants (CIMA). This material is published under license from the publisher through the Gale Group, Farmington Hills, Michigan. All inquiries regarding rights should be directed to the Gale Group. (Hide copyright information)
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The principle underlying learning curves is generally well understood: if we perform tasks of a repetitive nature, the time we take to complete subsequent tasks reduces until it can reduce no more. This is relevant to management accounting in the two key areas of cost estimation and standard costing.
Before we look at these we need to understand the maths. Imagine that we have collected the following information for the production of eight units of a product: it takes 1,000 hours to produce the first unit; 600 hours to produce the second unit; 960 hours to produce the third and fourth units; and 1,536 hours to produce the remaining four units. There is clearly a ...