Seligram Solution

Seligram Case Study

Presented To: Dr. Khaled Hegazy
Presented By: Mona Abdallah
Student ID: 131239

Question 1:
What caused the existing system at ETO to fail?

The existing cost system failed because of four main reasons. 1-The existing cost system is related to direct labor hour. One cost pool used for cost allocation under assumption: All product lots use direct labor and Overhead in the same proportion.

2- Cost system doesn’t match the complex business model. 3- New trends in the testing procedures (Vendor certification which lead to reduce the number of tests performed by ETO)

4- Change of technology (new high technology components required new advanced machines with more automatic and longer testing )

Question 2:

2. Calculate the reported costs of the five components described in:

Without New machine :

a) The existing system:

One burden Pool :
1- Effective Burden Rate: 145%
Product cost = Direct Labor $ + (Direct Labor $ * burden rate) ICA = 917 + (917*145%) = 2246.65 $
ICB =2051+(2051*145%) = 5024.95 $ CAPACITOR =1094+(1094*145%) = 2680.3 $
AMPLIFIER =52 5+(525*145%) = 1286.25 $
DIODE =519 +(519*145%) = 1271.55 $
Five Products total cost = $ 12509.70

b) The system proposed by the accounting manager:
The two-burden-pool :
1- Effective Machine-Hour Rate = $80.00
2- Effective Burden Rate Per Direct Labor $ = 20%

Product cost = Direct Labor $ + (Direct Labor $ * burden rate) + (Total machine hours *Machine-Hour Rate)

ICA = 917 + (917*20%)+ (18.5*80) = 2580.40 $
ICB =2051+(2051*20%)+ (40*80) = 5661.20 $ CAPACITOR =1094+(1094*20%)+ (7.5*80) = 1912.80 $
AMPLIFIER =525+(525*20%)+ (5*80) = 1030 $
DIODE =519 +(519*20%)+ (12*80) = 1582.80 $
Five Products total cost =$ 12767.20

c) The system proposed by the consultant:
The three-burden-pool :
1- Effective Burden Rate