Seligram Inc. Essay - 936 Words

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. This led to additional burden costs, which also varied from part to part. High-technology components were tested using more automated test equipment. These tests took longer, but did not require as many hours of direct labor. The test†¦show more content†¦Using the cost system proposed by the manager, the prices for the more automated tests would go up as the amount of machine hours used would be accounted for. The consultant’s approach improves upon the manager’s suggestion. Creating separate pools for the test rooms would better align the costs to prices even more so. The prices could be varied between complex and elementary tests. The burden for the mechanical room per machine hour is nearly twice that of the main room (112.63 vs 63.34). Parts tested using more hours in the mechanical room would cost more and prices for parts tested more in the main room would be reduced. The new prices will be accepted by customers (Cooper, HBR, Reading Packet p50). They are very likely to be aware that the prices they were paying were higher or lower than those of competitors. So they will not be surprised when ETO’s prices become more in line with competitor’s pricing. Assumption: The information about machine hours used per part is readily available at no additional cost. 4. A possible change to the plan proposed by the consultant would be to create pools based on the depreciation costs of a machine rather than which room the machine is located. There is no evidence that all test machines in the mechanical room have a higher depreciation expense than those in the main room. A partShow MoreRelatedSeligram Inc. Case Study951 Words   |  4 Pages1- 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 totalRead MoreSeligram, 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, Inc.: Electronic Testing Operations Case Analysis Essay2148 Words   |  9 PagesETO Case Study Analysis Seligram Incorporation, Electric Testing Operations (ETO) previously measured two components of cost: direct labor and manufacturing overhead. The existing cost system is very simple. Burden was grouped into a single cost pool that was combined with each of the testing rooms as well as the engineering burden costs related to software and tooling development and the administrating costs of the department. The total burden costs was then divided by the sum of testing andRead 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 Pages MANAGERIAL ACCOUNTING FOR DECISION MAKING AMIS 823 - SPRING 2008 CLASS SCHEDULE Monday, March 24 Topic: Course Introduction Case: None Read: None Wednesday, March 26 Topic: Measuring Product Costs Case: Seligram, Inc.; Electronic Testing Operations Read: (1) Accounting Bores You? Wake Up (Hand-out) (2) You Need a New Cost System When †¦, Robin Cooper, Harvard Business Review, January-February 1989. Monday, March 31 Topic: Cost Behavior,Read 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