Financial Performance!

Hey everyone,

Does anyone know how you would know if there were planned economies of scales in effect? I'm doing practice paper 2 from the AAT site and task 2.4 under the Labour answer states that "there appears to be planned economies of scale in production or the learning effect". The question does not state this in the scenario and I have no idea how I would know/.

Does anyone know what the learning effect is too?

Thanks

Claire

Comments

  • Nps
    Nps Experienced Mentor Registered Posts: 782
    I'm guessing this is the same question that someone asked about the other day so you are not the only one who has got stuck with it. I haven't read the question but you could potentially suggest that there are economies of scale in any situation where unit costs are likely to go down if more units are made at the same time (bulk buying discounts for materials, less set up costs etc ie quicker to make 1 batch of 10 rather than 10 batches of 1). The Learning Effect relates to the fact that when workers start to make a new product they will start off quite slow, but as they get better at it, they will get quicker and therefore cost less in labour. There is an equation to work it out but it certainly wasn't AAT level when I did AAT (it's covered in ACCA). A point is then reached where the learning effect is complete and all subsequent units take the same amount of time to make. It basically means that workers get better at a job with practice.
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