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    Learning Curve

    Uploaded by

    harisankar suresh
    The document discusses learning curves, which model how the time or cost to produce a unit decreases with cumulative production. Individual learning occurs from repeating tasks, while organizational learning comes from experience as well as changes to equipment, administration, and design. Learning curves assume unit time decreases at a decreasing rate following a predictable pattern. The normal learning curve equation models how labor hours (Yx) required for the xth unit equals the hours (K) for the first unit times x raised to the power of the learning rate (n). Examples show how to use learning curves to determine if a contract should be accepted, calculate total labor costs, and select the most profitable order between alternatives.

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    © All Rights Reserved
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    Learning Curve

    Uploaded by

    harisankar suresh
    15 views13 pages
    The document discusses learning curves, which model how the time or cost to produce a unit decreases with cumulative production. Individual learning occurs from repeating tasks, while organizational learning comes from experience as well as changes to equipment, administration, and design. Learning curves assume unit time decreases at a decreasing rate following a predictable pattern. The normal learning curve equation models how labor hours (Yx) required for the xth unit equals the hours (K) for the first unit times x raised to the power of the learning rate (n). Examples show how to use learning curves to determine if a contract should be accepted, calculate total labor costs, and select the most profitable order between alternatives.

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    Learning_Curve

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    The document discusses learning curves, which model how the time or cost to produce a unit decreases with cumulative production. Individual learning occurs from repeating tasks, while organizational learning comes from experience as well as changes to equipment, administration, and design. Learning curves assume unit time decreases at a decreasing rate following a predictable pattern. The normal learning curve equation models how labor hours (Yx) required for the xth unit equals the hours (K) for the first unit times x raised to the power of the learning rate (n). Examples show how to use learning curves to determine if a contract should be accepted, calculate total labor costs, and select the most profitable order between alternatives.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    15 views13 pages

    Learning Curve

    Uploaded by

    harisankar suresh
    The document discusses learning curves, which model how the time or cost to produce a unit decreases with cumulative production. Individual learning occurs from repeating tasks, while organizational learning comes from experience as well as changes to equipment, administration, and design. Learning curves assume unit time decreases at a decreasing rate following a predictable pattern. The normal learning curve equation models how labor hours (Yx) required for the xth unit equals the hours (K) for the first unit times x raised to the power of the learning rate (n). Examples show how to use learning curves to determine if a contract should be accepted, calculate total labor costs, and select the most profitable order between alternatives.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    of 13

    Learning Curve

    Learning Curve
    O Displays the relationship between unit production time
    (or unit cost) and cumulative production of units
    O Individual Learning: Improvement that results when
    people repeat a process and gain skill or efficiency from
    their own experience
    O Organizational Learning: Comes both from experience
    and from changes in administration, equipment, and
    product design
    O First applied in airlines industry by Paul Wright to
    describe the effect of learning on production costs
    2
    Assumptions of Learning Curve
    Theory
    O The amount of time required to complete a
    given task or unit of a product will be less
    each time the task is undertaken
    O The unit time will decrease at a decreasing
    rate
    O The reduction in time will follow a predictable
    pattern

    3
    Learning Curve

    Source: http://www.allbusiness.com/glossaries/learning-curve/4942495-1.html

    4
    Logarithmic Analysis
    O The normal form of learning curve equation is given
    as:
    Yx  Kx n

    where
    O x= no. of units
    O Yx=No. of direct labor hours required to produce the
    xth unit
    O K=No. of direct labor hours required to produce the
    first unit
    O n=log b/log 2, b is the learning percentage

    5
    Example 1
    O A job applicant has been tested to be hired in a firm. A regular employee, after
    1000 performance on the assembly line, takes approximately 4 minutes to
    complete the task. The job applicant takes 10 minute for the first task and 9
    minutes for the second task. Should he be hired? What is the expected time, he
    takes for the 10th unit?

    Learning Rate=Y2/Y1=0.9=90%
    K=10 minutes=1/6 hour
    We have to find Y1000=(1/6)*(1000)n
    n=log(0.9)/log(2)=-0.152
    Y1000=3.499 minutes<4
    Y10=(1/6)*(10)n=7.047 minutes

    6
    Cumulative Time
    O The cumulative time for producing ‘x’ units is
    given as:

    O Y1+Y2+…+Yx= K  1n  2n  ...  x n 

    7
    Learning Curve Table (Unit
    Improvement Factor)

    Source: http://mcu.edu.tw/~ychen/op_mgm/notes/part3_files/image217.jpg
    Applications
    O There are three general areas for the application and
    use of learning curves: strategic, internal, and external
    to the organization.
    O Strategic uses include determining volume-cost changes,
    estimating new product start-up costs, and pricing of
    new products
    O Internal applications include developing labor standards,
    scheduling, budgeting, and make-or-buy decisions
    O External uses are supplier scheduling, cash flow
    budgeting and estimating purchase costs 
    Example 2
    O An aircraft collected the cost data on the first
    8 units of its new business jet
    Unit No. Cost
    1 100
    2 83
    3 73
    4 62
    5 60
    6 57
    7 53
    8 51 10
    Example 3
    OA potentially large customer offered a
    subcontract assembly work that is profitable
    only if the firm can perform the operations at
    an average time of less than 20 minutes each.
    The contract is for 1000 units. Before
    accepting the order the firm wants to have a
    test run. It is found that the first product takes
    50 minutes, the second one takes 40 minutes
    and so on. Should the contract be accepted?

    11
    Example 4
    A firm has received a contract of manufacturing 1000
    units. It takes 10 minutes for manufacturing the first unit
    and 9 minutes for the second unit. The labor cost is $50
    per hour. Calculate the total labor cost. What is the
    maximum amount, the firm will be willing to spend in
    training that can reduce the overall learning rate to 85%.
    Use logarithmic analysis of learning curves to address
    the problem.
    Example 5
    A firm has received two orders:
    Order 1 is that of a standardized product and its size being 2000 units. It takes
    100 minutes to manufacture the first unit and 85 minutes to manufacture the
    second unit. Labor cost is $30 per hour. Material Cost is $ 10 per unit. Each
    unit could be sold at the price of $50.
    Order 2 is a combination of 1500 units of standardized product and 500 units
    of premium product. Material cost for the premium product will be $20
    whereas it can be sold at $65. Again it takes 100 minutes to manufacture the
    first unit and 85 minutes to manufacture the second unit.
    The firm needs to take a decision of selecting either of the order and ends up
    selecting an order that will give higher overall profits.
    Use logarithmic analysis for learning curve, Yx= Kxn & n=log (b)/ log (2)

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