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THE LEARNING RATE AND LEARNING EFFECT

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UnderthenewexamstructureforPaperF5,learningcurveswillcontinuetobeexamined,theonly
changebeingthatquestionsmayvaryalittlebitmorethantheyhavedoneinthepast.
TheDecember2013syllabusreadsestimatethelearningeffectandapplythelearningcurvetoa
budgetaryproblem,includingcalculationsonsteadystates.Thusfar,thishasbeeninterpretedtomean
thatthelearningratewillalwaysbegiveninaquestionandquestionswillfocuspurelyon'estimatingthe
learningeffect'thatis,calculatingthelabourtimeandusuallycostforagivenprocess.Historically,the
requirementsofquestionshavebeensuchithasbeennecessaryforcandidatestousethealgebraic
method,applyingthelearningcurveformulatoproblems,ratherthanthetabularapproach.
Bothmethods,however,haveactuallybeenexaminableunderthesyllabus,andforteachingpurposes,
thetabularapproachisalwaysagoodstartingpointtodemonstratehowthelearningcurveeffectactually
works.
InthesyllabusforDecember2014onwards,thewordslearningrateandlearningeffectwillbeused
ratherthansimplylearningeffect.Thiswordinghasbeenchangedinordertomakeitclearthat
candidatescouldnowbeaskedtocalculatelearningratestoo.
Thepurposeofthisarticleis,however,twofold:first,itistosummarisethehistoryofthelearningcurve
effectandhelpcandidatesunderstandwhyitisimportant.Second,itistolookatwhatpastlearningcurve
questionshaverequiredofcandidatesandtoclarifyhowfuturequestionsmaygobeyondthis.

ABRIEFHISTORYOFTHELEARNINGCURVE
Inpractice,itisoftenfoundthattheresourcesrequiredtomakeaproductdecreaseasproduction
volumesincrease.Itcostsmoretoproducethefirstunitofaproductthanitdoestoproducetheone
hundredthunit.Inpart,thisisduetoeconomiesofscalesincecostsusuallyfallwhenproductsaremade
onalargerscale.Thismaybeduetobulkquantitydiscountsreceivedfromsuppliers,forexample.The
learningcurve,effect,however,isnotaboutthisitisnotaboutcostreduction.Itisahumanphenomenon
thatoccursbecauseofthefactthatpeoplegetquickeratperformingrepetitivetasksoncetheyhavebeen
doingthemforawhile.Thefirsttimeanewprocessisperformed,theworkersareunfamiliarwithitsince
theprocessisuntried.Astheprocessisrepeated,however,theworkersbecomemorefamiliarwithitand
betteratperformingit.Thismeansthatittakesthemlesstimetocompleteit.
Thefirstreportedobservationofthelearningcurvegoesasfarbackas1925whenaircraftmanufacturers
observedthatthenumberofmanhourstakentoassembleplanesdecreasedasmoreplaneswere
produced.TPWrightsubsequentlyestablishedfromhisresearchoftheaircraftindustryinthe1920sand
1930sthattherateatwhichlearningtookplacewasnotrandomatallandthatitwasactuallypossibleto
accuratelypredicthowmuchlabourtimewouldberequiredtobuildplanesinthefuture.DuringWorld
WarII,USgovernmentcontractorsthenusedthelearningcurvetopredictcostandtimeforshipand
planeconstruction.Gradually,privatesectorcompaniesalsoadopteditafterthewar.
ThespecificlearningcurveeffectidentifiedbyWrightwasthatthecumulativeaveragetimeperunit
decreasedbyafixedpercentageeachtimecumulativeoutputdoubled.Whileintheaircraftindustrythis
rateoflearningwasgenerallyseentobearound80%,indifferentindustriesotherratesoccur.Similarly,
dependingontheindustryinquestion,itisoftenmoreappropriatefortheunitofmeasurementtobea
batchratherthananindividualunit.
Thelearningprocessstartsassoonasthefirstunitorbatchcomesofftheproductionline.Sincea
doublingofcumulativeproductionisrequiredinorderforthecumulativeaveragetimeperunitto
decrease,itisclearlythecasethattheeffectofthelearningrateonlabourtimewillbecomemuchless
significantasproductionincreases.Eventually,thelearningeffectwillcometoanendaltogether.Youcan
seethisinFigure1below.Whenoutputislow,thelearningcurveisreallysteepbutthecurvebecomes
flatterascumulativeoutputincreases,withthecurveeventuallybecomingastraightlinewhenthe
learningeffectends.
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Figure1
Thelearningcurveeffectwillnotalwaysapply,of
course.Itflourisheswherecertainconditionsare
present.Itisnecessaryfortheprocesstobea
repetitiveone,forexample.Also,thereneedsto
beacontinuityofworkersandtheymustntbe
takingprolongedbreaksduringtheproduction
process.

THEIMPORTANCEOFTHELEARNING
CURVEEFFECT
Learningcurvemodelsenableuserstopredict
howlongitwilltaketocompleteafuturetask.
Managementaccountantsmustthereforebesure
totakeintoaccountanylearningratewhenthey
arecarryingoutplanning,controlanddecisionmaking.Iftheyfailtodothis,seriousconsequenceswill
result.Asregardsitsimportanceindecisionmaking,letuslookattheexampleofacompanythatis
introducinganewproductontothemarket.Thecompanywantstomakeitspriceasattractiveaspossible
tocustomersbutstillwantstomakeaprofit,soitpricesitbasedonthefullabsorptioncostplusasmall
5%markupforprofit.Thefirstunitofthatproductmaytakeonehourtomake.Ifthelabourcostis$15
perhour,thenthepriceoftheproductwillbebasedontheinclusionofthatcostof$15perhour.Other
costsmaytotal$45.Theproductisthereforereleasedontothemarketatapriceof$63.Subsequently,it
becomesapparentthatthelearningeffecthasbeenignoredandthecorrectlabourtimeperunitshouldis
actually0.5hours.Withoutcrunchingthroughthenumbersagain,itisobviousthattheproductwillhave
beenlaunchedontothemarketatapricewhichisfartoohigh.Thismaymeanthatinitialsalesaremuch
lowerthantheyotherwisewouldhavebeenandtheproductlaunchmayfail.Worsestill,thecompany
mayhavedecidednottolaunchitinthefirstplaceasitbelieveditcouldnotofferacompetitiveprice.
Letusnowconsideritsimportanceinplanningandcontrol.Ifstandardcostingistobeused,itis
importantthatstandardcostsprovideanaccuratebasisforthecalculationofvariances.Ifstandardcosts
havebeencalculatedwithouttakingintoaccountthelearningeffect,thenallthelabourusagevariances
willbefavourablebecausethestandardlabourhoursthattheyarebasedonwillbetoohigh.Thiswill
maketheiruseforcontrolpurposespointless.
Finally,itisworthnotingthattheuseoflearningcurveisnotrestrictedtotheassemblyindustriesitis
traditionallyassociatedwith.Itisalsousedinotherlesstraditionalsectorssuchasprofessionalpractice,
financialservices,publishingandtravel.Infact,researchhasshownthatjustunderhalfofusersarein
theservicesector.

HOWLEARNINGCURVESHAVEBEENEXAMINEDINTHEPAST
ThelearningcurveeffecthasregularlybeenexaminedinPaperF5.Forexample,inDecember2011,it
wasexaminedinconjunctionwithlifecyclecosting.Candidateswereaskedtocalculatearevisedlifecycle
costperunitaftertakingintoaccountthelearningeffect.Thisinvolvedworkingouttheincrementallabour
timetakentoproducethefinal100thunitmadebeforethelearningeffectended.Thisisafairlycommon
examrequirementwhichtestscandidatesunderstandingofthedifferencebetweencumulativeand
incrementaltimetakentoproduceaproductandtheapplicationofthelearningcurveformula.Itisworth
mentioningatthispointthatyoushouldneverroundlearningcurvecalculationstolessthanthreedecimal
places.Insomequestions,wherethelearningeffectissmall,overroundingwillleadtoacandidatewiping
outtheentirelearningeffectandthenthequestionbecomespointless.
Thelearningcurveformula,asshownbelow,isalwaysgivenontheformulasheetintheexam.
Y=axb
WhereY=cumulativeaveragetimeperunittoproducexunits
a=thetimetakenforthefirstunitofoutput
x=thecumulativenumberofunitsproduced
b=theindexoflearning(logLR/log2)
LR=thelearningrateasadecimal
Whileavalueforbhasusuallybeengiveninpastexamsthereisnoreasonwhythisshouldalwaysbe
thecase.Allcandidatesshouldknowhowtouseascientificcalculatorandshouldbesuretotakeoneinto
theexamhall.
InJune2013,thelearningeffectwasagainexaminedinconjunctionwithlifetimecosting.Again,ashas
historicallybeenthecase,thelearningratewasgiveninthequestion,aswasthevalueforb.
BackinJune2009,thelearningcurveeffectwasexaminedinconjunctionwithtargetcosting.Onceagain,
thelearningratewasgiven,andavalueforbwasgiven,butthistime,anaveragecostforthefirst128
unitsmadewasrequired.Itwasafterthispointthatthelearningeffectended,sothequestionthenwent
ontoaskcandidatestocalculatethecostforthelastunitmade,sincethiswasgoingtobethecostof
makingoneunitgoingforwardinthebusiness.
Itcanbeseen,justfromtheexamplesgivenabove,thatlearningcurvequestionshavetendedtofollowa
fairlyregularpatterninthepast.Theproblemwiththisisthatcandidatesdontalwaysactuallythinkabout
thecalculationstheyareperforming.Theysimplypractisepastpapers,learnhowtoanswerquestions,
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andneverreallythinkbeyondthis.Intheworkplace,whenfacedwithcalculationsinvolvingthelearning
effect,candidatesmaynotbeabletotacklethem.Intheworkplace,thelearningratewillnotbeknownin
advanceforanewprocessandsecondly,evenifithasbeenestimated,differencesmaywellarise
betweenexpectedlearningratesandactuallearningrateexperienced.Therefore,itseemedonlyright
thatfuturequestionsshouldexaminecandidatesabilitytocalculatethelearningrateitself.Thisleadsus
ontothenextsectionofthearticle.

HOWTHELEARNINGEFFECTANDLEARNINGRATESMAYBEEXAMINEDFROM
DECEMBER2014ONWARDS
Obviously,thelearningeffectcouldbeexaminedexactlyasithasbeeninpastexams,withcandidates
beingaskedtocalculatethetimetakentoproduceanindividualunitoranumberofunitsofaproduct
eitherwhenthelearningcurveisstillineffectorwhenithasended.Thisobjectiveofthesyllabushasnot
changed.Asmentionedearlier,historically,questionshaverequiredtheuseofthealgebraicmethodand
avalueforbhasusuallybeengivenintheexam.Movingforward,sincecalculationsofthelearningrate
itselfmayberequiredinfutureexams,itbecomesevenmoreimportantthatcandidatesarefamiliarwith
boththetabularmethodandusingtheirscientificcalculators.Thefollowingquestionisanexampleofthe
kindofquestionthatmayappearinfutureexams.Here,thetabularmethodisthesimplestwaytoanswer
thequestion.
Example1
PCooperatesastandardcostingsystem.Thestandardlabourtimeperbatchforitsnewestproductwas
estimatedtobe200hours,andresourceallocationandcostdatawerepreparedonthisbasis.
Theactualnumberofbatchesproducedduringthefirstsixmonthsandtheactualtimetakentoproduce
themisshownbelow:
Month

Incrementalnumberof
batchesproducedeach
month

Incrementallabourhours
takentoproducethebatches

June

200

July

152

August

267.52

September

470.8

October

1,090.32

November

16

2,180.64

Required
(a)Calculatethemonthlylearningratethataroseduringtheperiod.
(b)IdentifywhenthelearningperiodendedandbrieflydiscusstheimplicationsofthisforPCo.
Solution
(a)Monthlyratesoflearning
Month

Incremental
numberof
batches

Incemental
totalhours

Cumulative
numberof
batches

Cumulative
totalhours

Cumulative
average
hoursper
batch

June

200

200

200

July

152

352

176

August

267.52

619.52

154.88

September

470.8

1090.32

136.29

October

1090.32

16

2180.64

136.29

16

2180.64

32

4361.28

136.29

November

Learningrate:
176/200=88%
154.88/176=88%
136.29/154.88=88%
Thereforethemonthlyrateoflearningwas88%.

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(b)Endoflearningrateandimplications
ThelearningperiodendedattheendofSeptember.ThismeantthatfromOctoberonwardsthetime
takentoproduceeachbatchoftheproductwasconstant.Therefore,infuture,whenPComakes
decisionsaboutallocatingitsresourcesandcostingtheproduct,itshouldbasethesedecisionsonthe
timetakentoproducetheighthbatch,whichwasthelastbatchproducedbeforethelearningperiodcame
toanend.Theresourceallocationsandcostdatapreparedforthelastsixmonthswillhavebeen
inaccuratesincetheywerebasedonastandardtimeperbatchof200hours.
PCocouldtryandimproveitsproductionprocesssothatthelearningperiodcouldbeextended.Itmay
beabletodothisbyincreasingthelevelofstafftrainingprovided.Alternatively,itcouldtrytoincentivise
stafftoworkharderthroughpaymentofbonuses,althoughthequalityofproductionwouldneedtobe
maintained.
Example2
Thefirstbatchofanewproducttooksixhourstomakeandthetotaltimeforthefirst16unitswas42.8
hours,atwhichpointthelearningeffectcametoanend.
Calculatetherateoflearning.
Solution
Again,theeasiestwaytosolvethisproblemandfindtheactuallearningrateistouseacombinationof
thetabularapproachplus,inthiscase,alittlebitofmaths.Thereisanalternativemethodthatcanbe
usedthatwouldinvolvesomemoredifficultmathsanduseoftheinverselogbuttononthecalculator,but
thiscanbequitetrickyandcandidateswouldnotbeexpectedtousethismethod.Shouldtheychooseto
doso,however,fullmarkswouldbeawarded,ofcourse.
Usingalgebra:
Step1:Writeoutthe
equation:
42.8=16x(6xr4)
Step2:Divideeachsideby
16inordertogetridofthe
16xontherighthandside
oftheequation:
2.675=(6xr4)
Step3:Divideeachsideby6inordertogetridofthe6xontherighthandsideoftheequation:
0.4458333=r4
Step4:takethefourthrootofeachsideinordertogetridofther4ontherighthandsideoftheequation.
Youshouldhaveabuttononyourcalculatorthatsaysr4orx1/y.Eitherofthesecanbeusedtofindthe
fourthroot(oranyroot,infact)ofanumber.Thekeyistomakesurethatyoucanuseyourcalculator
properlybeforeyouentertheexamhallratherthantryingtoworkitoutunderexampressure.Youthen
gettheanswer:
r=0.8171
Thismeansthatthelearningrate=81.71%.

SUMMARY
Theabovetwoexamplesdemonstratethetypeofrequirementsthatyoumayfindinfuturequestionson
learningcurves,togetherwiththeoldstylerequirementsthathavetraditionallybeenfoundinpast
questionsinPaperF5.Remember:nothingnewisbeingaddedtothesyllabushere.Allthatwearedoing
isencouragingyoutothinkalittleand,insomecase,perhapsusealittlebitofthemathsthat,asa
traineeaccountant,youshouldbemorethancapableofapplying.
WrittenbyamemberofthePaperF5examiningteam

Lastupdated:10Aug2015

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