Fundamentals of Cost Accounting 3rd Edition by William N. Lanen, Shannon W. Anderson, Michael Maher

Exercise 37

Learning Curves

Assume that Whee, Cheatham, and Howe is an auditing firm that has found that its summer interns are subject to a 90 percent learning curve for one of its important tasks, proofreading financial statements. For one of its interns, Kim Down, the firm has started to analyze the relation between time and financial statement proofreading.

Financial Statements Proofread (X)	Time Required to Proofread the X th Financial Statement
1	2.0 hours
2	1.8 hours
4	?
8	?
16	?

Required

a Complete the chart by filling in the time required to proofread 4, 8, and 16 financial statements.

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b Assume that Kim’s labor time costs $20 per hour. Compare the cost of proofreading the first financial statement to the cost of proofreading the 16th financial statement. What is the percentage of the cost of proofreading the 16th financial statement to the cost of proofreading the first financial statement?

Step 1 of 3

Cost estimation

Cost estimation is an important exercise because it helps managers in decision making. Correct cost estimates result in cost saving and making business successful. Cost estimates helps managers to evaluate and choose the best alternative. It is important for managers to capture the correct cost for each alternative.

There different methods used for cost estimation like engineering, accounting and statistical analysis.

Learning phenomenon

Learning phenomenon explains the relationship between amount of experience to perform a job and actual time required to perform a job. According to learning phenomenon, the time required to perform a job keeps on reducing and percentage of time required may varies each time or remain constant