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Hi John
Just a quick one (hopefully). In revising for the Dec 14 paper and working through the BPP text, in several examples they liken the learning curve for both the labour time and variable overheads (where variable overheads are based on the labour time). Under exam conditions, should we be presented with a learning curve query whilst the question also directs us to (for example) fixed costs for a product and variable overheads, should we be calculating the variable overhead in line with the learning rate too?
Sometimes it’s not explicit in the text whereby a question might state a product has the following costs:
Materials (say $10 per kilo x 5 kilos)
Labour (say $5 p/h x 4 hours)
VO’s (say $5 x 1 hours).Learning rate is 95% etc etc.
I’m guessing the examiner would be more explicit in her requirements if VO are to be brought in whilst recalculating the learning effect but your thoughts would be much appreciated.
Kindest Regards
Chris
There would be no logic in there being 4 hours of labour and 1 hour of variable overheads – it could not possibly happen in the exam.
The examiner will either just have variable overheads as one figure (e.g. $5 per unit) in which case it will be unaffected by the learning.
Or, more likely, the variable overheads will be stated as a rate per labour hour, in which case they will be affected by the learning.Obviously it is only the labour hours that is affected by the learning, and so only any costs dependent on labour hours will be affected.
Thanks John
Your advice, as always, is much appreciated.
Many thanks on behalf of all us students for this superb learning resource too. The work and effort you put in is exceptional and sincerely appreciated.
Kind Regards
Chris
I searched as I have a similar question and found this thread.
Is it right to think that the only time variable costs are incurred is when people are working? So variable overheads are based on a labour hour basis.
Thanks in advance.
It really depends on the question.
A variable cost is one where the total cost changes with the level of production. So variable costs might depend simply on the level of production, or they might depend on the labour hours, or they might depend on the machine hours. There is no rule, and in practice they would need investigating to see what was causing them (as in activity based costing effectively).
In the context of learning curves, in exam questions variable costs will usually depend on the labour hours worked (and therefore the cost will be affected in the same way as is the labour cost). However the question will always make it clear.
If you are told they vary with labour, then the learning effect is relevant. If not, then the learning effect is not relevant (for variable overheads).
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