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.
Which of the following statements is true?
A The target cost will decrease and the cost gap will increase
B The target cost will increase and the cost gap will decrease
C The target cost will remain the same and the cost gap will increase
D The target cost will remain the same and the cost gap will decrease
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I understand the concept behind why the target cost will remain the same but I need you to explain to me why will the cost gap increase? (The answer is C)
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Learning Rate (September 16 Question 29)
9y ago#1The higher the learning rate, the slower the learning is (if the learning rate was 100% then it would mean they were not ever getting any faster).
So with a higher learning rate, the time per unit will be higher and therefore the cost per unit will be higher. This will mean a higher cost gap.
Oh okay I get it, it actually means vice versa. Got it, thanks John!
9y ago#3You are welcome :-)
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