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ACCA Applied Knowledge · Management Accounting · Budget preparation

Tarn Co budgets sales of 2,000 units of a product. A 90% learning curve applies, and the first unit takes 100 hours. Which statement about the labour hours budget is correct for a learning curve?

Under a 90% learning curve, the cumulative average time per unit falls to 90% of its previous level each time cumulative output doubles. Therefore labour hours per unit should not be budgeted as constant, as that would overstate the labour hours and cost required.

  1. AThe cumulative average time per unit falls by 10% each time cumulative output doublesCorrect
  2. BThe time for each additional unit is constant at 100 hours
  3. CThe total time for 200 units is 100 hours x 200 x 90%
  4. DLearning applies only to the first 10 units made

Explanation

With a 90% learning curve the cumulative average time per unit is 90% of its previous value each time cumulative output doubles. Budgeting 100 hours per unit for all output would overstate hours. Applying 90% once to total hours is also incorrect because the reduction is progressive.

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