Flashcards in 9 Quantitative analysis Deck (7)
What are the advantages of high/low method?
- The high-low method has the enormous advantage of simplicity
- It is easy to understand and easy to use
What are the disadvantages of high/low method?
- It assumes that activity is the only factor affecting costs
- It assumes that historic costs reliably predict future costs
- It uses only two values, the highest and the lowest which may be distorted due to random variations.
What does Wrights Law state?
States that as cumulative output double, the cumulative average time per unit falls to a fixed percentage of the previous average time.
What is the official definition of the learning curve?
The mathematical expression of the commonly
observed effect that, as complex and labour
intensive procedures are
repeated, unit labour times tend to decrease.
What is the limitations of the Learning Curve Model
- The process needs to be labour intensive
- The product needs to be new
- The product is complex
- Production is repetitive and there is no breaks in production
What is the formula for the learning curve?
Y= a * xB X= Cumulative number of units Y = Cumulative average time per unit to produce X units A = Time required for first unit b = index of learning = logr/log 2
What is the applications of the learning effect?
- Pricing decisions - prices will be set too high if based of the costs of making the first few
- Work scheduling - less labour per unit will be required.
- Standard setting - if a product enjoys a learning cost than the standard will be too high.
- Budgeting - the presence of a learning effect should be taken into account when setting budgets