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BPP Revision Kit – Part C – Q199.
*Hi Jon, this is part of a question from the BPP Revision Kit. As it asked to draw an implication with the LR coming to an end, my understanding was to provide a conclusion in terms of each costing, budgeting and production.*
Discuss the implications of the learning effect coming to an end for Mic Co, with regard to costing,
budgeting and production.Here’s the summary of my answer
costing – since lr comes to an end, production are more efficient, resulting in more units produced per labour hour, therefore cost would be reduced.budgeting – since lr comes to an end, standard cost for a product would be set once lr comes to an end, therefore the cost could be set for a rather accurate budget
production – smooth work flow, less or no wastage, less or no errors.
*The answer given says something rather different from mine. That explains my confusion. I know this is rather long but I hope i could get some feedback from you if this would be acceptable.*
Costing – be careful the way you phrase this. Certainly the learning process will have resulted in less time and therefore less costs. However because it has now come to an end, there will be no further savings.
Budgeting – yes. what you have written is correct.
Production – no. Learning means they work faster, but it does not mean that they necessarily waste less or make fewer errors. Waste and errors are not related to the speed of learning.
Dear John,
I also have another question in relation to Learning Curve.
The question did not mention the learning rate. However, the learning effect stopped after the 16th batch.
1st batch took 0.75 hours
16th batch took 0.5 hours
The standard cost was revised to this figure once the “steady state” was reached.
Produced 10,000 batches.
Asked to calculate Fav labour efficiency planning variance.The solution does not take learning effect into account when calculating variance.
(10000*0.75)-(10000*0.5)= 2500 FavWhy dont we take learning effect into account when calculating Revised Hours?
For my understanding, standard cost is only revised after the steady state. Hence from batch 16th backward, we have to calculate the total hours based on learning rate.But learning rate isnt given, I am unable to do that.
Can you please show me where i got it wrong?
Thanks,
AngelaSince they had originally budgeted on 0.75 hours and then revised the standard cost to 0.5 hours, then the difference is the planning variance. The question says that it was ‘revised to this figure’.
Hi John, I got it. But my confusion here is why we shouldn’t revise the standard cost to 0.5 hours after the batch 16th, rather than from the first batch.
Because the standard cost was revised to this figure, but only once the “steady state” was reached. Does that not mean that any batches after the batch 16th will be revised to 0.5 hours, not the first 16th?
So, my understanding will be the total hours for 10,000 batches is:
(the total of first 16 batches) + (9984 * 0.5)Many thanks,
AngelaFirstly, the difference of the first 16 batches is insignificant given that they are producing 10,000!!
Secondly and more importantly, the question specifically says to revise the standard to 0.5 hours (not to do further calculation), and any revision of the original standard is a planning variance.
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