Seligram, Inc.: Electronic Testing Operations
1. What caused the existing system at ETO to fail?
2. Calculate the reported cost of the five components listed in Exhibit 6 using:
a. The existing system.
b. The system proposed by the accounting manager.
c. The system proposed by the consultant.
3. Which system is preferable? Why?
4. Would you recommend any changes to the system you prefer? Why?
5. Would you treat the new machine as a separate cost center or as a part of the main test room?
Bridgeton Industries: Automotive Component & Fabrication Plant
1. The official overhead allocation rate used in the 1987 model year strategy study at the Automotive Component and Fabrication Plant (ACF) was 435% of direct labor cost. Calculate the overhead allocation rate using the 1987 model year budget. Why do you get different numbers?
2. Calculate the overhead allocation rate for each of the model years 1988 through 1990. Are the changes since 1987 in overhead allocation rates significant? Why have these changes occurred?
3. Consider two products in the same product line:
Product 1 Product 2
Expected Selling Price $62 $54 Standard Material Cost 16 27 Standard Labor Cost 6 3
Calculate the expected gross margins as a percentage of selling price on each product based on the 1988 and 1990 model year budgets, assuming selling price remains constant and material/labor costs do not change from standard.
4. Are the product costs reported by the cost system appropriate for use in the strategic analysis?
5. Assume that the selling prices, volumes, and material costs for the 1991 model year will not change for fuel tanks and doors produced by the ACF of Bridgeton Industries. Assume also that if manifolds are produced, their selling prices, volume, and material costs will not change either.