Seligram, Inc.answer

Case 3: Seligram, Inc.
Group:

Question 2:
(a) Burden on labor cost basis
Product
DL $
Burden =145% *DL $
Total
ICA
917.00
1329.65
2246.65
ICB
2051.00
2973.95
5024.95
Capacitor
1094.00
1586.30
2680.30
Amplifier
525.00
761.25
1286.25
Diode
519.00
752.55
1271.55
(b) Burden on two cost pools basis

Proposed by MA
Burden on MH
Total cost
Product
DL $
Burden =DL $*20%
80$/MH

ICA
917.00
183.40
1480
2580.40
ICB
2051.00
410.20
3200
5661.20
Capacitor
1094.00
218.80
600
1912.80
Amplifier
525.00
105.00
400
1030.00
Diode
519.00
103.80
960
1582.80
Effective Machine-hour rate = test room burden/total machine hours= 80.00 (c) Burden on three cost pools basis

Proposed by MA
Main room burden
Mech. room burden
Total Cost
Product
DL $
Burden =DL* 20%
63$/MH
113$/MH ICA
917.00
183.40
535.5
1130
2765.90
ICB
2051.00
410.20
882
2938
6281.20
Capacitor
1094.00
218.80
189
508.5
2010.30
Amplifier
525.00
105.00
252
113
995.00
Diode
519.00
103.80
441
565
1628.80
*Calculate the machine hour rate of each room

Burden $
Machine hours
Machine hour rate
Main Test room
2103116
33201
63
Mechanical test room
1926263
17103
113
Total
4029379
50304
176
Question 3& 4:
We prefer the system proposed by the consultant. Because the flaw in the current system is that the system stands in a spending perspective, which allocate all overhead to all product at the same rate. However, some products are produced on simple labor-intensive equipment while others require very expensive automated equipment. Therefore it is extremely unlikely that all products consume direct labor and overhead in the same proportion.
It will easily lead to a death spiral. When testing process become more complicated, more expensive equipment are needed and less labor cost are involved, cost of each product will grow as the allocation rate grows(OH increase and DL decrease), and customers frightened by