Reporting Production Costs That Follow the Learning Curve Phenomenon.

Abstract The article reports that when the production costs of a product follow the learning curve phenomenon the ratio of actual production costs to units produced declines over the product's life cycle. The production process has two joint products, one physical and the other intangible. The physical product is the unit being produced for sale. The intangible product is the ability to produce additional units with a lower expenditure of time and materials. This intangible asset is a firm-specific, job-specific asset. It is of value because it can reduce subsequent production costs. The value of the intangible asset increases rapidly at first as the organization quickly acquires "know how." As production becomes more efficient the rate of investment in this intangible asset declines until little or no additional investment takes place. Finally, as the product's life cycle nears its end the intangible asset loses value as the potential cost savings from its use declines. Current accounting procedures do not give recognition to this intangible asset.