'Seligram Inc. Case Analysis\r'

'At the beginning, the Electronic Testing trading operations (ETO) measured both comp iodinnts of exist: direct tire and tear, but the kernel is grouped into a maven exist pool that includes all woo and dissever by direct persistence dollars to obtain the burden appraise. (Q2) ETO’s manager picked up 5 components to evaluate the impact of different history system. The reported comprises from existing system can be computed as follows, tending(p) the burden consecrate 145%: increase Direct parturiency pith follow be ICA 917 1,330 2,247 ICB 2,051 2,974 5,025Capacitor 1,094 1,586 2,680 Amplifier 525 761 1,286 Diode 519 753 1,272 Based on the accounting trough’s proposal, the operation burden can be divided into railcar-hour and direct confinement burden. We use the revise burden rate 21% and form-hour rate $80. 1 to show the updated constitutes: Product Direct chore Burden railway car hr Machine Burden Total Costs ICA 917 193 18. 50 1,482 2,591 ICB 2,051 431 40. 00 3,204 5,686 Capacitor 1,094 230 7. 50 601 1,924 Amplifier 525 one hundred ten 5. 00 401 1,036 Diode 519 109 12. 00 961 1,589If ETO follows the consultant’s recommend, treasures the master(prenominal) test populate and mechanical test room as different terms pools. The three-burden-pool system reports the constitute: ($63. 34 for of import room burden rate and $112. 63 for mechanical room) Product Direct Labor Burden Main get on Hour Mech. Room Hour Test Room Burden Total Costs ICA 917 193 8. 50 10. 00 1,665 2,774 ICB 2,051 431 14. 00 26. 00 3,815 6,297 Capacitor 1,094 230 3. 00 4. 50 697 2,021 Amplifier 525 110 4. 00 1. 00 366 1,001 Diode 519 109 7. 00 5. 00 1,007 1,635Among the three costing systems, we prefer the consultant’s proposal (Q3). The accounting manager treats the elevator car hours as separate cost pool because the machine-controlled operation process leads to large percentage of arrive cost comparing to direct labor. Meas uring the machine hour costs can help us to assess the total burden more accurate. However, given the same machine hours, the different hours spend in main room and mechanical room withal incurs different costs. We can see from butt 5 that mechanical room has higher unit cost per hour.Therefore, the three-cost-pool system can trace the costs pricker to the actual operation factors more clearly. (Q1) According to the two explanations shown above, the critical problem that causes ETO to fail is the single cost pool accounting system. In the single cost pool system, all products consume direct labor and overhead in the same proportion. However, some products take up more direct labors while others require automated machinery operation. And the trends of direct labor obsolescence also biased the unhurriedness of burden rate, which causes the verall product cost assessment father misleading. Managerial Accounting Case Study 2: Seligram, Inc: ETO Group 1 2 Although we prefer the co nsultant’s proposal, the three-cost-pool system still can be further improved by introducing another cost pool, the good support costs (Q4). Both the accounting manager and consultant regard the administrative and proficient functions as the same cost factor. However, we think the technical support is very different in nature comparing with administrative cost. Each type galvanizing component which sent to ETO varies greatly in its complexity.For example, a keyboard IC is much simpler then a 3D graphic treat IC and requires less (or virtually no) technical support since keyboard IC is a matured product. Administrative cost usually includes public overhead such as indirect salaried employee, security, storehouse/warehousing, telephones, and others. If we classify the technical functions in the same cost pool as administration costs, then a keyboard IC and a 3D graphic processing IC share the same direct labor burden rate, which is not reasonable. Therefore we recommend a four-cost-pool system that separate technical support from general direct labor burden. Q5) From the data provided in Exhibit 5 and Exhibit 7, we can calculate the main test room burden rate if the refreshful machine is included. The low gear division’s burden rate will be: Hours Variable dispraise Other Total Old Machine 33,201 887,379 88,779 1,126,958 2,103,116 in the altogether Machine 400 100,000 500,000 225,000 825,000 Sum 33,601 987,379 588,779 1,351,958 2,928,116 Machine Hour Burden estimate $ 8 7. 14 (first year) And the be years’ burden rate: Hours Variable derogation Other Total Old Machine 33,201 887,379 88,779 1,126,958 2,103,116New Machine 2,400 100,000 125,000 150,000 375,000 Sum 35,601 987,379 213,779 1,276,958 2,478,116 Machine Hour Burden Rate $ 6 9. 61 (remaining years) The original burden rate calculated from three-cost-pool system is $63. 34. Both the first year ($87. 14) and remaining years’ ($69. 61) burden rate per machine hour are much higher, especially for the first year. Since the new equipment is only needed by one or two customers in the foreseeable future, we should treat the new machine as separate cost center, or the new equipment will have a disastrous effect on ETO’s price structure.\r\n'