Seligram

In: Business and Management

Submitted By baseball12345
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1. What caused the existing system al ETO to fail? a. Several factors contributed to the ineffectiveness of the existing system. First, the labor-burden method for cost allocation became obsolete. Direct labor hours per lot tested was steadily declining and there was an increased reliance on vendor certification. This resulted in fewer overall test lots being delivered to ETO and larger quantities of smaller lots being received. Also, the “obsolescence of the labor-based allocation system was intensified by a shift from simple inspection services to broader based test technology.” (Seligram, Inc., 3) This resulted in a shift in the labor mix from direct to indirect personnel. Lastly, “the introduction of high-tech components created the need for more automatic testing, longer test cycles, and more data per part.” (Seligram, Inc., 3) This lead to a smaller base of direct labor to absorb the cost of depreciation on the new equipment.

2. Calculate the reported costs of the five components described in the case using:

a. The existing system. – * Effective rate= Total OH $/ Total DL $ * Effective rate x DL$ each item uses= Allocated OH * Total Cost= Allocate OH + DL (we don’t have DM in this case, but we would add it if we did) a. 2246.65 b. 5024.95 c. 2680.3 d. 1286.25 e. 1271.55 f. 7403.7 b. The system proposed by the accounting manager. g. 2589.57 h. 5681.71 i. 24668 j. 11950 k. 12378
c. The system proposed by the consultant.

3499.71
7922.21
2885.71
1415.21
2044.21

3. Which system is preferable? Why? a. We concluded that option C was the best choice because it separates total machine hours into each room: Mechanical and Main. This allows for more precise measurements of the overhead inputs and a more cost-reflective number allocated…...

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