Seligram: Managerial Accounting

1. What caused the existing system at ETO to fail?
The existing system does not account for time spent in the testing facility by each set of products. It allocates burden according to ‘direct labor dollar’ incurred instead of ‘machine hours’.

2.

DIRECT LABOR MAIN ROOM MECH ROOM TOTAL ICA 917 8.5 10 18.5 Accountants 183.4 680 800 2580.4 Consultants 183.4 538.4 1126.3 2765.1 Current 917 1329.7 2246.7 ICB 2051 14 26 40.0 Accountants 410.2 1120.0 2080.0 5661.2 Consultants 410.2 886.8 2928.3 6276.3 Current 2051.0 2974.0 5025.0 CAPACITOR 1094 3 4.5 7.5 Accountants 218.8 240.0 360.0 1912.8 Consultants 218.8 190.0 506.8 2009.7 Current 1094.0 1586.3 2680.3 AMPLIFIER 525 4 1 5.0 Accountants 105.0 320.0 80.0 1030.0 Consultants 105.0 253.4 112.6 996.0 Current 525.0 761.3 1286.3 DIODE 519 7 5 12.0 Accountants 103.8 560.0 400.0 1582.8 Consultants 103.8 443.4 563.1 1629.4 Current 519.0 752.6 1271.6 Machine hour rate 80 Current:
Burden rate per direct labour hour 0.2 1.45
Main Test Room 63.3
Mechanical Test Room 112.6

3. Which system is preferable and why?
The Consultants system is preferable as it takes into account the high cost of the Mechanical testing room and allocates that cost to the products that make use of that room instead of spreading it across all processes.

4. Would you treat the new machine as a separate cost center or as part of the main test room?
I would treat it as a separate cost center because it is not used by all