Experience Curve Effect

Question 1

Experience Curve Effect

Answer 1

Describes the observation of declining inflation-adjusted costs per unit in relation to the total quantity
produced within a certain period of time. With every doubling of the cumulative quantity produced, the
costs per unit will decrease by a certain percentage.

Experience curve is an instrument of (strategic) managerial accounting to analyze the long-term cost
position of companies

Using experience curve effects, companies can differentiate themselves and gain competitive strategic
cost advantages

Question 2

Learning Curve

Answer 2

Relationship between the frequency of repetition of a process and the
Input-/Output relationship of that process

Question 3

Potential drivers (experience curve effect)

Answer 3

Reduced assembly times due to learning effect -> lower labor costs / unit

Rationalization

Efficient supply chain

Innovation / Improvements in organizational structures and business processes

External learning effects through additional knowledge (e.g. consultants, cooperation with partners)

——— MA can use the experience curve effect to plan production processes and predict the development of
costs per unit for the future

Question 4

Strong impact of experience curve

Answer 4

High market share = high cumulative quantity produced = strong impact of experience curve effect:
better cost position than competitors

Question 5

Degression effects (static) (volume, production growth)

Answer 5

Fix Cost degression - Fixed cost can be allocated to more units

Economies of scale - Decreasing fixed cost when production capacity / size of the company increases

Economies of scope - Joint utilization of resources (R&D results; distribution channels,
platform strategies etc.) for more than 1 product

Question 6

Experience effects (dynamic) (time, skills improvement)

Answer 6

Learning effects - Describe the fact that repeated execution of tasks, those tasks can be executed more efficiently
(faster, less resource input, higher quality etc.)

Technical advance - Technical innovation cause a downward relocation of the cost function through process
innovation (new plant and equipment, digital economy, robotics etc.)

Rationalization - Improvements in effectiveness of organizational structures (business process reengineering,
standardization etc.)

Question 7

If yearly production quantity…

Answer 7

Increases:
Dynamic effects -> cost reduction
Static effects -> cost reduction
The combination -> both are reducing costs
Overall: significant cost reduction

Remains constant:
Dynamic effects -> cost reduction
Static effects -> none
The combination -> cost reduction
Overall: weak cost reduction

Decreases:
Dynamic effects -> cost reduction
Static effects -> cost increase
The combination -> balancing
Overall: weak cost reduction or even cost increase

Question 8

Main impact of static and dynamic cost reduction effects….

Answer 8

• Gain market share
• Realize doublings of cumulative production quantities faster than competitors
• Realize lower cost position through cost reduction compared to competitors

Question 9

Theoretical Foundation

Answer 9

• Experience only expressed in a single explanatory variable (cumulative production quantity)
• Market share does not necessarily correspond with cumulative production quantity

• Market share relates to a specific period of time
• Cumulative production quantity relates to all past periods