Learning Curve Variances

Learning curves recognise that people can get quicker as they repeat a process. This has obvious implications for setting standard times and costs for labour and hence will impact the calculation and interpretation of labour variances. This page looks at how to calculate labour variances, taking into account learning curves.

Learning curve variances

The learning curve

The learning curve model states that each time the number of units produced doubles, the cumulative average time per unit is reduced by a constant percentage.

Impact on labour variances

The learning curve model will affect labour variances since:

• The initial standard time taken to produce the item will become rapidly out of date.
• Variances calculated using out of date standards will quickly become meaningless for planning and control.

In many respects the easiest way of incorporating learning effects is to build them into the standards used.

Illustration

A company has introduced a new product and it is anticipated that a 90% learning curve applies. The standard cost card for the product,based on estimates for the time required to produce the first unit,includes standard labour time of 200 hours at a cost of $8 per hour.

The first 8 units took 1,150 hours to produce at a cost of $9,430.

Required:

Calculate the labour rate and efficiency variances based on a labour standard which takes into account the learning curve effect.

Solution

Standard average time per unit for the first 4 units:

y = ax^b

where b is the learning coefficient

b= log r/ log 2 = log 0.9/ log 2 = - 0.15200

y = 200 × 8^-0.15200 = 145.80 hours

Standard time for the first 8 units:

145.80 hours × 8 units = 1,166.40 hours

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