Seligram Case Study
Bihe Du
Assignment 3
Case Seligram
- What caused the existing system at ETO to fail?
ETO’s cost system calculate overhead by using total overhead divided by the total direct labor dollars which is the burden rate according to the case. The direct labor hours per lot tested had been steadily declining because of the increased dependence on vendor certification, the shift from simple inspection services to broader-based test technology, and the introduction of high-technology components. As a result, some products are produced on simple labor intensive equipment while others used expensive automated equipment. The testing processes become more and more complicated. ETO is tend to use more and more high technology and automatic equipment which require less labor force. Since the total overhead is increasing while the proportion of costs due to direct labor is decreasing, labor-based burden allocation process is non-accurate and leading to fail now.
- Calculate the reported costs of the five components described in Exhibit 6 under each of the following. Show your work.
- The existing cost system
Under The Existing System: | |||
Products | Direct Labor $ | Overhead@145% | Total Cost |
ICA | $917 | $1,330 | $2,247 |
ICB | $2,051 | $2,974 | $5,025 |
Capacitor | $1,094 | $1,586 | $2,680 |
Amplifier | $525 | $761 | $1,286 |
Diode | $519 | $753 | $1,272 |
- The system proposed by the accounting manager
Under Accounting Manager: | |||||
Products | Direct Labor $ | E&A Burden@20% | Total Mach-Hrs | Burden@80 | Total Cost(sum of $) |
ICA | $917 | $183 | 18.5 | $1,480 | $2,580 |
ICB | $2,051 | $410 | 40 | $3,200 | $5,661 |
Capacitor | $1,094 | $219 | 7.5 | $600 | $1,913 |
Amplifier | $525 | $105 | 5 | $400 | $1,030 |
Diode | $519 | $104 | 12 | $960 | $1,583 |
- The system proposed by the consultant
| Burden | Machine Hrs | Machine-Hrs Rate |
Main Test Room | $2,103,116 | 33201 | $63.34 |
Mech. Test Room | $1,926,263 | 17103 | $112.63 |
Total | $4,029,379 | 50,304 | $80.10 |