Ama query: learning curve theory...

The equation that we learn establishes the relation b/n labour hours and output that for twice the qty of output the labour hour reduces at a fixed rate. So we can use the equation only for labour hours.

Direct material may exhibit a different kind of relationship with increasing output. We cannot apply the same equation here

Hi devya...

 

Consider an example where 2 kgs of Raw material is needed per unit of FG. Also 10 Hrs are needed for first unit produced......

 

Now when we produce second unit, third unit, 4th unit, fifth unit etc.... the labour force becomes akin to the work they are doing... hence there is learning curve....

 

That is, they consume less time than the time they consumed on the previous unit.

 

But the ratio of input to output remains constant. How can input experience a learning curve when the ratio is fixed as min.... 2 kg of RM is needed in any condition to produce 1 unity of FG...

@ Roshan... Learning curve also applies even when the the next output is less than twice of the previous one..:)

Thanks for the quick reply Roshan & Deepak, I am convinced now that learning curve theory isn't applicable on material costs currently....
A learning curve can't be established on the same parameters as those of Direct Labour costs
But how should a manager deal with the reduction in Direct Material wastage due to increaed learning and experience while making a budget? 

 

from what i could gather from your query is that u r talking about reduction in scrap and not the input quantity itself(as that wud be impossible)... if the above stated is correct then u can understand as follows- every prodn activity encounters normal loss. to that extent wastage can't be reduced. but any abnormal loss can be reduced with help of standard variance analysis... it wud be pertinent to note that THE SPIRIT OF LEARNING CURVE APPLIES TO MATERIAL in only 1 case... when new prodn facility is setup then abnormal loss is bound to happen..bt as labour becomes more experienced the loss tends to be reduced to normal levels. THIS NOT WRITTEN IN ANY BOOK BUT THIS WHAT I HAVE UNDERSTOOD IN MY ARTICLESHIP DOING AUDITS OF DIFF TYPES. i hope the doubt is resolved..

Thanks for the explanation Deepak, you got my querry right...

If we apply Learning Curve theory on cost items other than Labour (e.g. Material) then it is known as Experience Curve (Source https://vimeo.com/27288408 & Last question of Learning Curve of Book of Parag Gupta Sir).

Hey deepti tnx a lot fr dat info!!!!.......a very important update regarding the subject...n it feels gud when sumthing u've recognised practically is already in the books of some select authors...yo!!!  :)

Thanks a ton Deepti, At last my querry got a legitimate answer..... That is; Yes Experience/Learning results in reduction of Cost per unit and it is governed by "Experience Curve"...