Value Breeds Success

This week we take a look at the need for business value creation as a trait in emerging professionals as well as an imperative management accounting topic, learning curves.

Management Accounting And Decision Making

Learning Curves

When accounting for product costs in a management accounting perspective, it is important to consider the impact of learning curves. This is especially relevant in a labour intensive as well as complex manufacturing environment.

The definition:

The uses of learning curves:

• Production planning and scheduling.

• KPI(Key Performance Indicator) analysis of employees.

• Product costing.

Determining the learning curve

In the case that the output has doubled, to determine the learning curve % the following formula should be used:

What if output doesn’t double?

If the output of units does not double, it is still possible to consider the learning curve effect using the formula below, keep in mind that this formula works both when output doubles and when it has increased but not doubled:

Yx = aX^b

• Yx = average time per unit for cumulative production of x units

• a = time required to make the first unit

• X = number of units of output under consideration

• b = ratio of the log of the learning curve( Log(LC)/Log(2))

Alternatively the below formula can be used, after rearranging our original formula:

Ln(Y) = Ln(a) + (Ln(LC)/Ln(2)) x Ln(X)

Learning Curve Graph

The below graph illustrates the formula and thus the effect of a learning curve, and can help to visualise the concept.

Current Affairs

Ellies Suspends Trade On The JSE

The electronic maker, Ellies has recently announced that it will suspend the trade of its shares on the JSE(Johannesburg Stock Exchange). This follows its recent liquidation struggles after a failed attempt at capturing motion in the local renewable energy market.

Once a bolstering company employing roughly 300 people at its peak, since beginning operations in 1979, and sitting at a share price of well over R9 on the JSE in 2013. It gives rise to questions about how such business giant can come crumbling down.

Success can breed complacency, and Ellies fell victim to the allure of dealmaking at the expense of holistic business development. While initial ventures like the DSTV decoder sets reaped substantial profits, the winds of change left their sales dry while streaming services like Netflix captured consumer preferences. The company's pivot to capitalize on the energy crisis with "Project Power Save", their attempt at gaining a foothold in local renewable energy, showcased foresight but lacked the strategic depth to navigate a competitive landscape and ultimately was implemented at an extremely poor time.

Therefore, it's crucial for students in the accounting and business field to recognize these shortcomings to prepare them for their future roles as business leaders. An emphasis on enhancing business value creation through value-added services enables leaders to continuously adapt their businesses in an ever-changing and challenging market and economy.

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