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From September 2016 exam, direct labour cost per unit has been based on an expected learning rate of 90% but now the finance director has realised that a 95% learning rate should be applied..
I will expecting that the target cost will remain the same and the cost gap will decrease but the answer was- cost gap will increase.. why?A higher learning rate means they are learning less quickly then we expected.
If the learning rate was 100% then it would mean they were not getting faster at all and the time per unit would stay the same!
So although the target cost will remain the same, the cost gap will increase because the units will take longer to make than expected and therefore cost more than was expected.
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