The three-burden-pool system reports the cost: This existing cost system failed because of three main reasons. This change has led to a shift in the labor mix, reducing the quantity of direct labor and increasing indirect labor hours.
This system leads to a large percentage of total cost of machine hours. Each type electrical component which sent to ETO varies greatly in its complexity.
Therefore, ETO could Seligram case study cheaper, rapid and cost-effective engineering services, the divisions should purchase their testing from ETO. Q5 From the data provided in Exhibit 5 and Exhibit 7, we can calculate the main test room burden rate if the new machine is included.
Which system is preferable? The third method, the one proposed by the consultant, is relatively the best among the three as it divides direct labor cost from the machine cost Main-Test Room and Mechanical Test Roomwhich makes more sense and more fair, yielding a more accurate estimate.
Measuring the machine hour costs can help us to assess the total burden more accurate. The original cost system assumes that the allocation base of direct labor hours accounts for all overhead. In the single cost pool system, all products consume direct labor and overhead in the same proportion.
Implementing two- and three-burden-pool systems utilize separate burden centers for accounting could allocate the burden costs based on machine hours and rate per direct labor dollar.
Adding additional, cost pools, especially ones that are relevant to the cost drivers and one that is easily Seligram case study to product testing will provide more accurate cost information. This would be appropriate if direct labor constitutes a significant part of the product costs and there was a high correlation between direct labor and changes to overhead.
How to Write a Summary of an Article? Such as, should invest in the equipment required to test the next generation of components. 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.
Costs Describe the existing cost system and explain why it failed The current cost system is based on two components: However, implementing costs systems are expensive and more complex than traditional costing systems. Therefore, the three-cost-pool system can trace the costs back to the actual operation factors more clearly.
Having this knowledge and understanding the breakdown of their costs will help ETO make decisions about future investments. I would recommend that ETO separate direct product costs out more, such as tooling and software development from administrative general overhead costs.
However, some products need more direct labors while others require automated machinery operation. The downside of it, thou, is that this method would increase the total cost As for recommendation, we would suggest the company to allocate their cost according to the real usage of the material.
The ability to see this breakdown will allow ETO to allocate costs more accurately.
This results in product cost distortion and all customers end up sharing equal costs despite the different cost in product testing. ETO will have to decide if the benefits outweigh the investment of time and resources required to break down these costs further.
Adding in the allocation base of Machine hours to the direct labor hours, will allow them to have a better sense of where costs are incurred. Managerial Accounting Case Study 2: Moving forward, this will help ETO understand which processes are profitable and what costs should be charged to customer to be more competitive and in line with their market.
However, this is not the case for ETO. Would you recommend any changes to the system you prefer? ETO became less competitive on elementary testing and on large lots. However, there were still cheaper regarding engineering support and high technology testing.
Both of the new systems are more reasonable and relevant than the existing one in terms of burden costs on machine and direct labor.
For example, a keyboard IC is much simpler then a 3D graphic processing IC and requires less or nearly no technical support since keyboard IC is a matured product.
However, given the same machine hours, the different hours spend in main room and mechanical room also incurs different costs.
But for the second method, the one proposed by the accounting manager, penalizes jobs with relatively more main machine hours than mechanical machine hours.
More essays like this: Increasing automation would then lead to a smaller need of direct labor and would increase expenses in terms of automated equipment. Finally, this would increase the final manufacturing cost and would make ETO less and less competitive. Therefore we recommend a four-cost-pool system that separate technical support from general direct labor burden.
The accounting manager treats the machine hours as separate cost pool because the automated operation process leads to large percentage of total cost comparing to direct labor.Case study requiring higher level of understanding Well whatever may be the case, our online library is equipped with all the arsenal you would ever need for your case study solutions/analysis.
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Case Studies Solutions,Article Writing,Assignments,Research Work,Home Work. Seligram Case StudyPresented To: Dr. Khaled Hegazy Presented By: Mona Abdallah Student ID: 1-The existing cost. Describe the existing cost system and explain why it failed The current cost system is based on two components: a direct and indirect cost measurement.
There are only two types of cost: direct labor and burden. Burden is grouped into a single cost pool and represents the cost of both testing rooms, engineering burden costs [ ]. Seligram Inc Electronic Testing Operations Case Solution, Seligram Inc Electronic Testing Operations Case Analysis, Seligram Inc Electronic Testing Operations Case Study Solution, Seligram Inc Electronic Testing Operations Case Solution Looks into the uselessness of a cost design when technology is modified.
In specific, it questions students to raise cost center’s numbers. As described in the case study, components significantly varied in number and type of electrical and mechanical testing required.
For example, some components required six different flows through the facility while others only required electrical testing at room temperature (Seligram p 2).Download