ACCA PM Syllabus D. Budgeting And Control - Reservations with Learning Curve - Notes ^{8 / 8}

Consequences of the learning curve theory

1. A standard costing system would need to set standard labour times after the learning curve had reached a plateau.

2. A budget will need to incorporate a learning cost factor until the plateau is reached.

3. A budgetary control system incorporating labour variances will have to make allowances for the anticipated time changes.

4. Identification of the learning curve will permit the company to better plan its marketing, work scheduling, recruitment and material acquisition activities.

5. The decline in labour costs will have to be considered when estimating the overhead apportionment rate.

6. As the employees gain experience they are more likely to reduce material wastage.

The learning curve theory limitations

1. The stable conditions necessary for the learning curve to take place may not be present – unplanned changes in production techniques or labour turnover will cause problems and affect the learning rate.

2. The employees need to be motivated, agree to the plan and keep to the learning schedule – these assumptions may not hold.

3. Accurate and appropriate learning curve data may be difficult to estimate.

4. Inaccuracy in estimating the initial labour requirement for the first unit.

5. Inaccuracy in estimating the output required before reaching a ‘steady state’ time rate.

6. It assumes a constant rate learning factor.