1. What caused the existing system at ETO to fail? According to information from the case‚ the existing system at ETO failed largely due to the single cost pool accounting system where all products consume direct labour and overhead in the same proportion. However‚ some products require more direct labor hours‚ while others are produced using automated machine operation. The trend of direct labor obsolescence also biased the calculation rate; hence‚ overall product cost assessment is misleading
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Seligram Inc. 1. The existing system at ETO began to fail because direct labor hours per lot began to decrease due to vendor certification. Vendors would do the primary testing and ETO would only be required to test a small sample of each lot to verify the results were valid. In the marketplace‚ ETO’s prices were lower than outside competition for testing complex parts‚ yet the prices were higher for elementary testing. Another important factor to consider is that engineering support increased
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PREGUNTAS DE PREPARACION CASO SELIGRAM INC. ¿Cuáles son las causas para que el actual sistema (ETO) presente fallas? El sistema de contabilidad de costos actual se basa en una tasa estándar cuya base de asignación (costdriver) es la Mano de Obra directa. La empresa ha sufrido cambios en los cuales la mano de obra ha disminuido su participación en la producción; actualmente existe una mayor participaciciónde mano de obra indirecta y la empresa ha adquirido nuevos equipos para automatizar
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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
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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
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Seligram‚ Inc. 1. What caused the existing system at ETO to fail? As we learned in chapter 7 initially‚”… cost systems designs were simple…“(Brewster et.al‚ p. 236). The goal of the allocation process is to assign overhead in a manner that most appropriately reflects the cause /effect relationship of incurred costs. These cost systems were based on belief that there was a high correlation between direct labor hours and units produced (Brewster et. al‚ p. 237). ETO’s current cost
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Question 1 There are mainly three factors leading to the failure of the existing system at ETO. First‚ there has been a steady decline in direct labor hours per lots and fewer test lots. Such a decline is mainly due to an increased dependence on vendor certificate‚ which is a key component of JIT delivery. Number of tests being done by ETO reduces because the suppliers did the testing by themselves. Second‚ there is a shift from simple inspection services to broader-based test technology. Although
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Seligram‚ INC The Seligram‚ INC. has provided electronic testing of various components since 1983. One of 11 divisions of the company‚ Electronic Testing Operations (ETO)‚ has played a central role in the testing operations. However‚ technological advancement of testing and outdated machines have challenged the company’s prospect in the industry. The main issue‚ in the introduction of the new equipment‚ Seligram needs to find optimal system to control overhead cost. Q2 (a) Single burden pool
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Q1) Seligram is using a single pool cost system. In the single cost pool system‚ all products consume direct labor and overhead in the same proportion. The problem with this is that some products need more direct labor while others require more automated machinery operation. Therefore‚ the proportion of direct labor used to the proportion of direct machining used for each component differs‚ while they are all being charged at the same rate. The shift in the industry from labor intensive testing
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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
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