Seligram Inc Electronic Testing Operations Case Solution

Case Solution

Analyzes the obsolescence from the cost system when technology changes. Particularly, it asks students to enhance the quantity of cost center and allocation bases. The firm moves in the one-center, direct labor-hour system with a three-center, direct labor-hour and machine-hour systems.

Excel Calculations

Calculating Burden Rate- Existing System

Caluating Buden Rates Pool wise- Account Manager's system

Caluating Buden Rates Pool wise- Consultant's system

Calculating New machine's costs

If the New machine is treated as separate cost centre

If the New machine is treated as part of the main room

Questions Covered

1.       What caused the existing system at ETO to fail?

2.       Calculate the reported costs of each of the five components under:

(a)    The existing system;
(b)   The system proposed by the accounting manager; and
(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 part of the main test room? Why