FIN 703

LEARNING CURVES LECTURE EXAMPLES

WIDGET MANUFACTURERS (PTY) LIMITED

Labour is contracted at the start of the year for the entire year ahead and is based on the
planned units to be manufactured. Widget Manufacturers (Pty) Ltd started with production
in the previous year and produced 450 units during that year with the first unit taking the
production team 200 total labour hours to complete. During the previous year’s production
it was soon obvious that a learning curve effect of 95% is applicable (the learning curve
effect is expected to last for the first 3 years of production). One labour hour costs R20 per
hour.

Assume the number of units to be manufactured in the new year is 378 units.

Explain the meaning of and identify each of the variables in the learning curve formula
y=axb and apply the formula to the information to calculate the total labour hours needed
for production in the new year. Do not round your calculation of b and round all other
answers to the closest 2nd decimal.

① 828 total units

② ③
° >
units
1
450 units 378

& >
LC= 95%

To ?
>

-
>
o

b
Ya ✗
logic / logz
=

logos; / 1092=-0,074
a
b = =

✗450=200450 ""
4
-

✗ 1=450 units
)
a
127,26h /unit 200h
=
=

Total time (450 units LC =

95%
) :/ 27,26×450
= 57267 hour 1st
year
-

✗828=2005828 -
0/074
)
Total Total
=
121,64 h / unit Y2 =
828 -

Total ↳ so
Total time (828 units
=
100722
) :/ 21,64×828 -

57267
= 100722 hour -

year / &z
=
43455 hours