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Learning Rate. Qn 2 BPP Revisons Kit Mock 2 Pg 315

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA PM Exams › Learning Rate. Qn 2 BPP Revisons Kit Mock 2 Pg 315

  • This topic has 5 replies, 3 voices, and was last updated 10 years ago by John Moffat.
Viewing 6 posts - 1 through 6 (of 6 total)
  • Author
    Posts
  • November 17, 2014 at 6:05 am #210591
    modestoboto
    Member
    • Topics: 1
    • Replies: 10
    • ☆

    Dear Tutor
    I came across this question in the BPP revision kit and has given me very hard time..,

    …….Production of DVD occur in batches of 10,000 units the P director believes that 50% of variable manufacturing cost would be affected by a learning curve. This would apply to each batch produced & continue at a constant rate of learning up to a production volume of 40,000 units when a learning would be complete. The p Director estimates that the variable manufacturing cost of the first batch would be $60($30 of which is subject to the effect of learning curve, and $30 of which is unaffected), whereas the average unit variable manufacturing cost of all four batches would be $52.71. there are no non-manufacturing variable costs associated with the DVD recorder.

    Calculate the rate of learning that is expected by the production director?

    In their solution…..,
    At 10,000 units, variable cost affected by learning = $30
    At 40,000 units, variable cost affected by learning = $22.71
    Let the rate of learning be r
    22.71/30 = r2
    r2 = 0.757
    r = 0.87

    Why should r be squared?, and why 22.71/30…infact the whole reasoning has defeated my understanding….

    Please help out. ( Modesto from kampala,Uganda)

    November 17, 2014 at 10:01 am #210647
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54680
    • ☆☆☆☆☆

    Have you watched the free lecture on learning curves? I actually go through an example like this in the lecture!

    Every time production is doubled, then average time per unit falls to a fixed percentage of the previous average time.

    Starting with 10000, doubling once gives 20000 and doubling twice gives 40000.

    If we have doubled twice, then the average time per unit (and therefore the variable cost per unit) will fall to 30 x r when we double once, and to 30 x r x r (i.e. 30 x r^2) when we double twice (where r is the learning rate).
    So….30 x r^2 = 22.71

    I do suggest that you watch the free lecture!

    November 22, 2014 at 7:13 pm #212269
    Hatif
    Member
    • Topics: 5
    • Replies: 12
    • ☆

    But how would we calculate variable cost per unit for 30000 batch?
    For batch of 20000, it would be 30×0.87.
    I get that. But I cant figure it out for 30000 unit batch.
    Thanks.

    November 23, 2014 at 10:33 am #212340
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54680
    • ☆☆☆☆☆

    For 3 batches, because it is not doubling, you need to use the formula from the formula sheet. This will give the average time per batch.

    November 25, 2014 at 11:06 am #213091
    modestoboto
    Member
    • Topics: 1
    • Replies: 10
    • ☆

    Thanks John…it now makes sense to me. God bless you.

    November 26, 2014 at 8:47 am #213302
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54680
    • ☆☆☆☆☆

    You are welcome 🙂

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