Answer Key for Seligram, Inc. page 1 1. What business decisions at Seligram does the cost system support? In this context, what caused the existing cost system at Seligram (ETO) to fail? In general, a cost system supports the pricing decisions of the firm. ETO’s existing cost system contains only one cost center (the entire facility). All overhead is collected into a single cost pool, and the total overhead cost is divided by the total number of direct labor dollars consumed to give a single
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Seligram, Inc: Electronic Testing Operations Questions 1. The reason for ETO’s failure lies within its single cost pool accounting system. This system treats all products similarly in terms of required direct labor and overhead. However, five products require different amounts of direct labor, while some needs automated operation. We also believe that trends of obsolescence of labor-based burden allocation process may have played a role in miscalculating the cost for ETO. 2. Exhibit 1 shows
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DATE: Jan 25 2015 SUBJECT: Seligram Corporation Analysis ETO’s existing cost system contains only one cost pool, which is the entire facility. All manufacturing overhead is collected into this pool, and the total overhead cost uses total number of direct labor dollars as its cost allocation base. These labor hours are consumed to give a single direct labor dollar burden rate. Failure of the Existing System: The major flaw in ETO’s existing system is that it assumes that all products consume
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the labor-based allocation system was intensified by a shift from simple inspection services to broader based test technology.” (Seligram, Inc., 3) This resulted in a shift in the labor mix from direct to indirect personnel. Lastly, “the introduction of high-tech components created the need for more automatic testing, longer test cycles, and more data per part.” (Seligram, Inc., 3) This lead to a smaller base of direct labor to absorb the cost of depreciation on the new equipment. 2. Calculate
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Seligram and Managerial Accounting Wrap-Up 15.501/516 Accounting Spring 2004 Professor S. Roychowdhury Sloan School of Management Massachusetts Institute of Technology May 10, 2004 11 Seligram ETO ¾ ETO: A support department / cost center ¾ Who are ETO’s customers? – the departments producing ICA, ICB, Capacitor, Amplifiers and Diodes ¾ Customers have to bear the cost of maintaining and operating ETO. ¾ Any signs of problems? 12 Main Questions
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Seligram Write-up 1. What type of cost system is Seligram using? What are the symptoms of cost system failure at ETO? What caused the existing system at ETO to fail? Seligram is using a cost system that costs everything across the entire facility. The total overhead is summed together and divided by the total number of labor dollars to get one burden rate for the company. This doesn’t account for the variance in the individual testing costs for different products. In this situation, you will
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Seligram * They need to figure out the pricing to cover the cost * Get demand from customer, then complete the task * Customer decided the product mix * Now only one single pool, direct labor as cost driver, no longer accurate * We want to add cost pool and cost driver 1. allocate indirect cost to cost pools 2. use cost driver to allocate cost to product 1. allocate indirect cost to cost pools 2. use cost driver to allocate cost to product Overview: * ETO tests electronic
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Seligram, Inc: Electronic Testing operations Executive Summary ACC 736 9/20/11 Introduction Electronic Testing Operations (ETO) is a division of Seligram Inc that provides centralized testing for electronic components such as integrated circuits. ETO operated as a cost center and transferred products to other divisions at full cost. Signs of obsolescence came from the dependence on vendor
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Answer Key for Seligram, Inc. page 1 1. What business decisions at Seligram does the cost system support? In this context, what caused the existing cost system at Seligram (ETO) to fail? In general, a cost system supports the pricing decisions of the firm. ETO’s existing cost system contains only one cost center (the entire facility). All overhead is collected into a single cost pool, and the total overhead cost is divided by the total number of direct labor dollars consumed to give a
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1. What caused the existing system at ETO to fail? The existing system at ETO began to fail because direct labor hours per lot began to decrease due to vendor certification that allows vendors to do the primary testing. In this way, ETO would only be required to test a small sample of each lot for verification purpose. In addition, as ETO increased its engineering support to enhance customer experience, a shift in labor mix from direct to indirect personnel was prompted. However, the existing
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