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

You are required to :

(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 ;

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

Data :

Direct labour needed to make the first machine : 1000 hours Learning curve : 80%

Direct labour cost: £3 per hour Direct materials cost: £1800 per machine Fixed cost for either size order: £8000