You have been asked about the application of the learning curve as a management accounting technique.

Required

(a) Define the learning curve.

(b) Explain the theory of learning curves.

(c) Indicate the areas where learning curves may assist in management accounting.

(d) Illustrate the use of learning curves for calculating the expected average unit cost of making:

(i) 4 machines; and

(ii) 8 machines, using the data given below.

Data:

Direct labour needed to make the first machine: 1,000 hours Learning curve: 80%

Direct materials cost: £1,800 per machine