Electronic Testing Operations (ETO)‚ a division of Seligram‚ Inc.‚ provided centralized electronic components throughout the 1980s. This centralization was estimated to save Seligram over $20 million in testing equipment investment over the next five years. ETO primarily tested for divisions within Seligram; however‚ was allowed to devote up to 10% of its testing capabilities to outside resources. Component testing is important for two main reasons. Firstly‚ if defective components are detected
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------------------------------------------------- Subject: Managerial Accounting Case 1 Seligram In the Seligram case‚ the existing cost accounting system measured two components of cost: direct labor and burden. All burden cost‚ which is the overhead‚ was grouped into a single cost pool and was calculated only by using a burden rate per direct labor dollar. This may cause problems since direct labor and overhead are not consumed by the products in the same proportion. Simply using the same burden
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1. What caused the existing system at ETO to fail? The existing system does not account for time spent in the testing facility by each set of products. It allocates burden according to ‘direct labor dollar’ incurred instead of ‘machine hours’. 2. DIRECT LABOR MAIN ROOM MECH ROOM TOTAL ICA 917 8.5 10 18.5 Accountants 183.4 680 800 2580.4 Consultants 183.4 538.4 1126.3 2765.1 Current 917 1329.7 2246.7 ICB 2051 14 26 40.0 Accountants 410.2 1120.0 2080.0 5661
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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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Was the existing system adequate in the past? Why or why not? Why is it no longer adequate? The existing system was adequate in the past due to heavy reliance on direct labor hours. The ETO served as a central cost center‚ and transferred the costs to other divisions at direct costs plus allocated burden. Being in the late 1970s and early 1980s‚ technology testing of components required fewer cycles‚ and less complicated structures. Hence‚ such testing on products could be carried out by direct
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Definition of ’Market Indicators’ A series of technical indicators used by traders to predict the direction of the major financial indexes. Most market indicators are created by analyzing the number of companies that have reached new highs relative to the number that created new lows‚ also known as market breadth. What is active management? Actively managed investment funds are‚ like their namesake‚ run by a professional fund manager or investment research team‚ who make all the investment decisions
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1) What caused the existing system at ETO to fail? This system was based on the assumption that direct costs and overhead are consumed in the same proportion for all product testing. However‚ this is not the case and therefore the system failed. For example‚ due to the implementation of the vendor certification and the just-in-time delivery‚ some products are already tested and do not need any further tests‚ and ETO faces a decreasing number of the tests performed. On the other hand‚ new components
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to 2005‚ because of vendor certification‚ the number of direct labor hours per lot has noticed a 30% decrease. Less tests done means less direct labor hours per lot. - The shift from simple inspection services to broader-based test technology: ETO became less competitive on elementary testing and on large lots. However‚ there were still cheaper regarding engineering support and high technology testing. This change has led to a shift in the labor mix‚ reducing the quantity of direct labor and
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ETO 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 and
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TOPICS 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 you
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