Definition of Learning Curve
A common learning curve shows that the cumulative average time to complete a manual task (in which learning is involved) will decrease 20% whenever the cumulative volume doubles. This common learning curve (where the cumulative average time decreases by 20%) is known as an 80% learning curve.
Example of 80% Learning Curve
To illustrate the 80% learning curve, let's use as an example a person learning to design and code websites of similar size and complexity. If the first website takes the person 100 hours, then after the second website the cumulative average time will be 80 hours (80% of 100 hours). This cumulative average of 80 hours consists of 100 hours for the first website plus only 60 hours for the second website resulting in a total of 160 hours divided by 2 websites = 80 hours.
After the fourth website the cumulative average time for all four websites will be 64 hours (80% of 80 hours). After the eighth website the cumulative average for all 8 websites will be 51.2 hours (80% of 64 hours). In other words, the total time to have completed all eight websites will be 409.6 hours (8 websites times an average time of 51.2 hours).
Improvements in technology can also result in time and cost reductions beyond those in the learning curve. For example, software may become available to assist in the design and coding, computer processing speeds might increase, there may be lower costs of processing and storage, etc.
In accounting, the learning curve is important for setting standards, estimating costs, and establishing selling prices.