Question

Assume that Whee, Cheatham, and Howe is an auditing firm that has found that its summer interns are subject to a 90 percent learning curve for one of its important tasks, proofreading financial statements. For one of its interns, Kim Down, the firm has started to analyze the relation between time and financial statement proofreading.

Financial Statements Proofread (X)	Time Required to Proofread the Xth Financial Statement
1	9.0000 hours
2	8.1000 hours
4	?
8	?
16	?

Required:

a. Compute the time required to proofread 4, 8, and 16 financial statements. (Round your answers to 4 decimal places.)

b. Assume that Kim's labor time costs $5 per hour. Compare the cost of proofreading the 1st financial statement to the cost of proofreading the 16th financial statement. What is the percentage of the cost of proofreading the 16th financial statement to the cost of proofreading the 1st financial statement? (Do not round your intermediate calculations. Enter your answer as a percentage rounded to 2 decimal places (i.e., 32.21))

Answer 1

Financial Statements Proofread (X)	time required to proofread the Xth Financial Statement (in hrs)
1	9.0000
2	8.1000
4	7.2900	(8.1*.90 hrs)
8	6.5610	(7.29*.90 hrs)
16	5.9049	(6.5610*.90 hrs)
b. Cost of proofreading 1st financia statement	$ 45 ( $5*9 Hrs)
Cost of proofreading 16th financial statement	$ 29.52 ($ 5*5.9049 hrs)
% of Cost of proofreading 16th financial statement to the 1st financial statement	cost of 16th financial statement/cost of 16th financial statement*100
	29.52/45*100
	65.6 %
Note:
Learning curve theory states that as a labour works on repetitive task its efficiency increases
and he is able to do the same task in shorter period. In our questions this rate is 90%