CMA Final · Strategic Cost Management · Learning Curve
Ishaan Tools Ltd. applies an 80% incremental unit-time (Crawford) learning curve; the first unit takes 100 hours. Learning is expected to stop after the 4th unit, after which every unit takes the same time as the 4th unit. Labour costs Rs 150 per hour. What is the labour cost of the 8th unit?
The labour cost is Rs 9,600. On the unit-time curve the 4th unit takes 64 hours, and since learning ceases after that point, the 8th unit also takes 64 hours. At Rs 150 per hour, the cost is Rs 9,600.
- ARs 9,600Correct
- BRs 7,680
- CRs 12,000
- DRs 15,000
Explanation
On the unit-time model, the 2nd unit takes 80 hours and the 4th unit takes 64 hours. Since learning stops after the 4th unit, the 8th unit also takes 64 hours, costing 64 × 150 = Rs 9,600. Rs 7,680 ignores the plateau and uses 51.2 hours, which the curve would give for the 8th unit.
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