Seligram Inc. Case Study - 951 Words

1- Describe the existing cost system and explain why it failed The current cost system is based on two components: a direct and indirect cost measurement. There are only two types of cost: direct labor and burden. Burden is grouped into a single cost pool and represents the cost of both testing rooms, engineering burden costs (software and tooling development), plus the administrative costs of the division. Burden was then calculated for each lot, with a burden rate of 145% The lot’s total cost is the sum of the direct labor cost added to the burden cost. This existing cost system failed because of three main reasons. The existing cost system is related to direct labor hours. - Vendor certification: with vendor†¦show more content†¦This cost system is more accurate since it gives us the cost of each component according to their consumption of machine hours, direct hours†¦ Thus it makes it possible to see where changes can be operated. By operating the cost pool into three-burden-pool system, it makes it possible to allocate the costs of each activity to their actual cost driver. It is more precise than the other costs systems since it separates the main test room and the mechanical test room and the third, which is the technological and administrative pool. Existing system Manager’s system Consultant’s system Lot’s total cost 12509.75 $ 12767.2 $ 13658.41 $ Using the consultant’s system makes it possible to know more precisely the total cost of each lot by allocating each cost to its real driver. That is why the total cost per lot is more expensive in the consultant’s system than in the others. One can notice also that indeed, the manager’s system is better than the existing one. Still, the preferable system to use is the system proposed by the consultant, as explained in the next board. In the manager’s system, the second pool includes all other burden costs and are charged based on machine hours; where as, the consultant treats the machine hours as two separate cost pools which are the main testing room and the mechanical room. This system leads to a large percentage of total cost of machine hours. Existing system Consultant system Second pool MainShow MoreRelatedSeligram, Inc. Electronic Testing Operations Essay example2749 Words   |  11 Pages Rev. April 28, 1993 Seligram, Inc.: Electronic Testing Operations tC We put in a piece of automated equipment a year ago that only fits the requirements of one customer. This equipment reduced the direct labor required to test his components and, because of our labor-based burden allocation system, substantially reduced his costs. But putting a $40,000 machine into the general burden pool raised the costs to our other customers. It just doesn’t make sense shooting yourself in theRead MoreSeligram Case Study1130 Words   |  5 PagesSeligram, Inc. 1. What caused the existing system at ETO to fail? As we learned in chapter 7 initially,†Ã¢â‚¬ ¦ cost systems designs were simple†¦Ã¢â‚¬Å"(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 costRead MoreBridgeton Paper1671 Words   |  7 PagesTOPICS IN MANAGEMENT ACCOUNTING AMIS 4310 CASE QUESTIONS 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 youRead Morecafes monte bianco case analysis4234 Words   |  17 Pagesexecution, and overall enhancement of a firm’s value. Primarily taught through case studies, this course will utilize and build upon the concepts studied in prior Management Accounting courses, and allow the students an opportunity to see how these concepts fit together. Selected readings from textbooks and business periodicals will be used to blend in appropriate theory for newer subjects that may be the focus of some case studies. The world of business continues to change dramatically. As a resultRead MoreAccounting Case Essay1930 Words   |  8 PagesSeligram, 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