Case Discussion: Learning Curve “B” - Assignment
Case Discussion: Learning Curve “B” - Assignment
A buyer has placed an order with a supplier for 100 pieces at a per-unit price of $281 and has collected the following cost data:
Material $100
Direct labor $50 (5 hours at $10 per hour)
Overhead $75 (150% of direct labor)
Total costs $225
Profit (25%) $56
Total per unit $281
The buyer now wants to place an order for an additional 700 pieces.
Assignment Questions
1. What do you estimate the buyer should pay per unit for the next 700 pieces assuming the supplier demonstrates a 75% learning curve? What if the learning rate is actually 85%? What do you estimate is the per unit cost of the next 700 pieces?
1. A: $178/unit at a 75% Learning Curve
212/unit at an 85% Learning Curve
2. Under what conditions can we use learning curves to estimate prices? In other words, when does the learning curve apply?
2. A: The Learning Curve is applicable when used for new products or processes that have a high potential for improvement, such as producing a technically complex item for the first time, or when an item has high direct-labor content.
3. Why can we use rough estimates when applying learning curves?
3. A: Assuming a reduction in time will follow a predictable pattern, and because it is predictable, we can develop estimates.
4. Why do manual processes experience greater learning curves than automated processes?
4. A: The worker has the ability to learn and improve through repetitive effort and increased efficiency.
5. Are there factors besides learning that can help reduce costs as volume increases?
5. A: Modifications to the production process; such as introducing new production methods, substituting increased automation for labor, or updating process technology.
A buyer has placed an order with a supplier for 100 pieces at a per-unit price of $281 and has collected the following cost data:
Material $100
Direct labor $50 (5 hours at $10 per hour)
Overhead $75 (150% of direct labor)
Total costs $225
Profit (25%) $56
Total per unit $281
The buyer now wants to place an order for an additional 700 pieces.
Assignment Questions
1. What do you estimate the buyer should pay per unit for the next 700 pieces assuming the supplier demonstrates a 75% learning curve? What if the learning rate is actually 85%? What do you estimate is the per unit cost of the next 700 pieces?
1. A: $178/unit at a 75% Learning Curve
212/unit at an 85% Learning Curve
2. Under what conditions can we use learning curves to estimate prices? In other words, when does the learning curve apply?
2. A: The Learning Curve is applicable when used for new products or processes that have a high potential for improvement, such as producing a technically complex item for the first time, or when an item has high direct-labor content.
3. Why can we use rough estimates when applying learning curves?
3. A: Assuming a reduction in time will follow a predictable pattern, and because it is predictable, we can develop estimates.
4. Why do manual processes experience greater learning curves than automated processes?
4. A: The worker has the ability to learn and improve through repetitive effort and increased efficiency.
5. Are there factors besides learning that can help reduce costs as volume increases?
5. A: Modifications to the production process; such as introducing new production methods, substituting increased automation for labor, or updating process technology.