Learning Curve

Essay

Learning Curve. Teddy Bear, Inc., a rapidly growing manufacturer of high fashion children's shoes, plans to open a new production facility in Bethesda, Maryland. Based on information provided by the accounting department, the company estimates fixed costs of $500,000 per year and average variable costs at:

where AVC is average variable cost (in dollars) and Q is output measured in cases of output per year.
A. Calculate total cost and average total cost for the coming year at a projected volume of 50,000 pairs of shoes.
B. An increase in worker productivity due to greater experience or learning during the course of the year resulted in a substantial cost saving for the company. Calculate the effect of learning on average total cost if actual total cost was $1,080,000 at an actual volume of 60,000 pairs of shoes.