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Question 29.
The 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.
The answer: The target cost will remain the same and the cost gap will increase.
My question: Why does the cost gap increase? Is it because a higher learning rate means they are learning more on the job? Learning more on the job means they are slower and less efficient, thus increases cost.
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