Seligram

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  • Topic: Costs
  • Pages : 3 (722 words )
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  • Published : April 8, 2013
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1. What caused the existing system at ETO to fail?

According to information from the case, the existing system at ETO failed largely due to the single cost pool accounting system where all products consume direct labour and overhead in the same proportion. However, some products require more direct labor hours, while others are produced using automated machine operation. The trend of direct labor obsolescence also biased the calculation rate; hence, overall product cost assessment is misleading.

2. Calculate the reported costs of the five components using: a. The existing system

Given the burden rate of 145%:
Product | Direct Labour | Burden | Total Costs |
ICA | 917| 1329.65| 2246.65|
ICB | 2051| 2973.95| 5024.95|
Capacitator | 1094| 1586.3| 2680.3|
Amplifier | 525| 761.25| 1286.25|
Diode | 519| 752.55| 1271.55|

b. System proposed by the accounting manager

Product | Direct Labour | Burden | Machine Hour (Main & Mech) | Machine Burden | TC| ICA | 917| 183.4| 18.5| 1480| 2397|
ICB| 2051| 410.2| 40| 3200| 5251|
Capacitator | 1094| 218.8| 7.5| 600| 1694|
Amplifier | 525| 105| 5| 400| 925|
Diode | 519| 103.8| 12| 960| 1479|

*Based on direct labour rate of 20% & machine-hour rate of $80

c. System proposed by the consultant

Product | Direct Labour | Burden | Machine Hour | Mechanical Room Hour | Test Room Burden | Total Costs| ICA | 917| 193| 8.5| 10| 1665| 2774|
ICB| 2051| 431| 14| 26| 3815| 6297|
Capacitator | 1094| 230| 3| 4.5| 697| 2021|
Amplifier | 525| 110| 4| 1| 366| 1001|
Diode | 519| 109| 7| 5| 1007| 1635|

*Based on direct labour rate of 20% & machine-hour rate of $63

3. Which system is preferable? Why?

Among the three costing systems, the consultant’s proposal is preferable. The accounting manager regards the machine hours as a separate cost pool as the...
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