Seligram Inc. Case Analysis

Only available on StudyMode
  • Topic: Costs
  • Pages : 4 (893 words )
  • Download(s) : 331
  • Published : March 30, 2013
Open Document
Text Preview
At the beginning, the Electronic Testing Operations (ETO) measured two components of cost: direct labor and burden, but the burden is grouped into a single cost pool that includes all costs and divided by direct labor dollars to obtain the burden rate.

(Q2) ETO’s manager picked up 5 components to evaluate the impact of different accounting system. The reported costs from existing system can be computed as follows, given the burden rate 145%: Product Direct Labor Burden Total Costs

ICA 917 1,330 2,247
ICB 2,051 2,974 5,025
Capacitor 1,094 1,586 2,680
Amplifier 525 761 1,286
Diode 519 753 1,272
Based on the accounting manger’s proposal, the operation burden can be divided into machine-hour and direct labor burden. We use the revised burden rate 21% and machine-hour rate $80.1 to show the updated costs:

Product
Direct
Labor
Burden
Machine
Hour
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 525 110 5.00 401 1,036
Diode 519 109 12.00 961 1,589
If ETO follows the consultant’s recommend, treats the main test room and mechanical test room as different cost pools. The three-burden-pool system reports the cost: ($63.34 for main room burden rate and $112.63 for mechanical room)

Product
Direct
Labor
Burden
Main Room
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 1,635
Among the three costing systems, we prefer the consultant’s proposal (Q3). 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. Measuring 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...
tracking img