CMA Part 1

Section B:
Planning,
Forecasting &
Budgeting
Topic – Learning
curves
 B3 Forecasting Techniques Wiley Question Bank

Question 1:
1B3-LS41

Which of the following are the shortcomings of learning curve analysis?

I. Most new employees will improve at their tasks.

II. The learning curve approach is not as effective when robotics perform repetitive tasks.
III. The learning rate is assumed to be constant, but actual learning rate and declines in
production times are not constant.
IV. Data that show improvements in productivity may be mistakenly assumed to be due to
learning when they are in fact due to other factors.

a. I, II, III, and IV.

b. I and III only.
c. II, III, and IV only.
d. II and IV only.
Virtually all people new to a task can learn and improve performance, regardless of IQ and
education levels.

Question 2:
A manufacturing company required 800 direct labor hours to produce the first lot of four
units of a new motor. Management believes that a 90% learning curve will be experienced
over the next four lots of production. How many direct labor hours will be required to
manufacture the next 12 units?

a. 1,944
b. 1,792
c. 2,160
d. 2,016
Using a cumulative average time learning curve, as the cumulative output doubles, the
cumulative average direct labor hours per unit becomes the learning curve percentage
times the previous cumulative average direct labor hours per unit. The cumulative average
direct labor hours after two lots of four units are produced would be calculated as follows:

Direct labor hours to produce first lot = 800 hours

Direct labor hours to produce one unit in the first lot = 800 hours / 4 units = 200 hours per
unit

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When output doubles to 2 lots of 4 (or 8 units), the cumulative average direct labor hours
to produce 2 lots = (0.9)(200) = 180 hours per unit

When output doubles again, to 4 lots (or 16 units), the cumulative average direct labor
hours to produce 4 lots = (0.9)(180) = 162 hours per unit

So, the total hours for the 16 units would be calculated by taking the cumulative average
direct labor hours to produce 4 lots (or 16 units), and dividing that amount by 16 units.

Total direct labor hours required to produce 4 lots (or 16 units) = (162 hours per unit)(16
units) = 2,592 hours

Therefore, the total hours for the 12 additional units would be calculated by taking the total
number of hours required to produce all 4 lots (or 16 units) and subtracting the 800 hours
that were required to produce the first lot (or 4 units).

Total direct labor hours required to produce the next 12 units = 2,592 hours − 800 hours =
1,792 hours
Question 3:
Propeller Inc. plans to manufacture a newly designed high-technology propeller for
airplanes. Propeller forecasts that as workers gain experience, they will need less time to
complete the job. Based on prior experience, Propeller estimates a 70% cumulative
learning curve and has projected the following costs.

If Propeller produces eight units, the average manufacturing cost per unit will be:

a. $9,800.
b. $1,647.
c. $14,000.
d. $6,860.

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Consider the following:

Question 4:
1B3-AT25

Lake Corporation manufactures specialty components for the electronics industry in a

highly labor intensive environment. Arc Electronics has asked Lake to bid on a component
that Lake made for Arc last month. The previous order was for 80 units and required 120
hours of direct labor to manufacture. Arc would now like 240 additional components. Lake
experiences an 80 percent learning curve on all of its jobs. The number of direct labor
hours needed for Lake to complete the 240 additional components is:

a. 307.2.
b. 256.
c. 288.
d. 187.2.

As illustrated in the above table, an 80% cumulative average-time learning model states
that as cumulative output doubles, the cumulative average time per batch becomes 80%
of the previous cumulative average time.

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 B3 Forecasting Techniques Wiley Question Bank

The average time for the first batch of 80 units was 120 direct labor hours. The cumulative
average time per batch for two batches (160 units) would be 96 direct labor hours (0.80 ×
120).

For four batches (320 units), the cumulative average time per batch would be 76.8 direct
labor hours (0.80 × 96).

Therefore, the total time for four batches (320 units) would be 307.2 direct labor hours (4 ×
76.8).

The time for the 240 additional units would be 187.2 direct labor hours (the 307.2 for the
320 units less the 120 for the first 80 units).

Question 5:
1B3-AT26

Huron Company plans to bid on a special project that calls for a total of 24,000 units. The
units will be produced in lots with the first lot consisting of 750 units. Based on prior
experience, the direct labor time needed per unit of product will be progressively smaller
by a constant percentage rate as experience is gained in the manufacturing process. The
quantitative method that would best estimate Huron's total cost for the project is:

a. Learning curve techniques.

b. Differential calculus.
c. Linear programming.
d. Cost-volume-profit analysis.
Learning curve analysis is a systematic method for estimating costs when a learning
process is involved. Calculations for the analysis are based upon a learning rate. The
learning rate is the rate at which the cumulative average time per lot produced decreases
as cumulative output doubles.

Question 6:

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A manufacturing company has the opportunity to submit a bid for 20 units of a product on
which it has already produced two 10-unit lots. The production manager believes that the
learning experience observed on the first two lots will continue for at least the next two
lots. The direct labor required on the first two lots was as follows:

 5,000 direct labor hours for the first lot of 10 units

 3,000 additional direct labor hours for the second lot of 10 units

The learning rate experienced by the company on the first two lots of this product is:

a. 62.5%.
b. 80%.
c. 40%.
d. 60%.
Using a cumulative average time learning curve, as the cumulative output doubles, the
cumulative average direct labor hours per unit becomes the learning curve percentage
times the previous cumulative average direct labor hours per unit.

So, if the first lot used 5,000 direct labor hours and the second lot required 3,000 direct
labor hours, then the total for the 2 lots would be 8,000 direct labor hours and the
cumulative average hours for the two lots would be 4,000 direct labor hours (8,000 direct
labor hours / 2).

Therefore, the learning curve percentage would be calculated by taking the cumulative
average hours for the two lots (4,000 direct labor hours) and dividing it by the number of
direct labor hours used for the first lot (5,000), or 4,000 / 5,000 = 0.8, or 80%.

Question 7:
1B3-CQ12

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Martin Fabricating uses a cumulative average-time learning curve model to monitor labor
costs. Data regarding two recently completed batches of a part that is used in tractor-
trailer rigs is as follows:

If the same rate of learning continues for the next several batches produced, which of the
following best describes (1) the type (i.e., degree) of learning curve that the firm is
experiencing and (2) the average hours per unit for units included in the 201-400 range of
units produced (i.e., the last 200 units)?

a. 80% learning curve, 7.68 average hours per unit.

b. 80% learning curve, 10.24 average hours per unit.
c. 20% learning curve, 3.84 average hours per unit.
d. 20% learning curve, 10.24 average hours per unit.
Using a cumulative average time learning curve, as the cumulative output doubles, the
cumulative average direct labor hours per unit becomes the learning curve percentage
times the previous cumulative average direct labor hours per unit.

The learning curve percentage can be calculated as 16 cumulative average hours per unit,
divided by 20 cumulative average hours per unit, or 16 / 20 = 0.8, or 80%.

When output doubles to 4 batches, the cumulative average hours for 4 batches (or 200
units) would be calculated as follows:

Cumulative average direct labor hours for 4 batches (or 200 units) = 0.8(16 hours) = 12.8
hours

The total hours for the first 200 units would be 2,560 hours, which is calculated by
multiplying 12.8 hours by 200 units to arrive at 2,560 total hours.

When output doubles again, to 8 batches, the cumulative average hours for 8 batches (or
400) units would be calculated as follows:

Cumulative average direct labor hours for 8 batches (or 400 units) = 0.8(12.8) = 10.24
hours

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The total hours for 400 units would be 4,096, which is calculated by multiplying 10.24
hours by 400 units to arrive at 4,096 total hours.

Therefore, the total hours for the second batch of 200 units (units 201 through 400) would
be calculated by taking the total hours for 400 units and subtracting the total hours for the
first 200 units, as follows:

Total hours for second batch of 200 units = 4,096 hours − 2,560 hours = 1,536 hours

The average hours for the second batch of 200 units would be calculated by taking the
total hours for the second batch of 200 units and dividing it by 200 units, as follows: 1,536
hours / 200 units = 7.68 hours.

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