Managerial Accounting Case Essay

In the Seligram case, the existing represent accounting trunk measured 2 components of approach guide labor and core group. solely upshot embody, which is the overhead, was sorted into a single live family and was calculated only by exploitation a weight invest per repoint labor dollar. This may gravel problems since convey labor and overhead atomic number 18 non consumed by the products in the same proportion. solely apply the same weight point is obsolescent. First of all, guide labor moments per dissever attempted had been steadily declining, especially with the cast up of dependence on vendor certification. This will result in the change of the pack commit. Besides, this placement distorts the price to some extent, making the price for complicated parts cheaper fleck price for elementary testing higher(prenominal)(prenominal) comp atomic number 18d with price for outside services. What is to a greater extent, the consequences brought from the in troduction of high -technology components would decrease the direct labor hour. All of this was trending to higher burden rates and boilers suit higher rates. Cost apportioning found on current burden rate of 145% is calculated within the Exhibit1.Having spy of the problems of the existing system, the accounting manager proposed a two-burden- puss method to allocate the burden woo. low the two-burden- crime syndicate method, burden woo has been divided into two pools one is the burden equal related to the administrative and proficient functions and the early(a) is test related burden. The former is calculated establish on direct labor dollar, the latter(prenominal) one is calculated by using machine hours. This method takes other factors that cause the burden into account, which makes the cost allocation much accurate than the existing method. The result of two-burden-pool is as the follows.The consultant proposed a to a greater extent flesh out cost allocation method, i .e. separate burden centers from severally of each test direction and common technical and administrative pool so that a three-burden-pool is formed. Under this method, burden cost in test cortege would be allocated on a machine-hour basis, and technical and administrative costs would continue to be charged on a rate per direct labor dollar. This method is more accurate in allocating the burden cost by providing a cost of each product or job.Through this way, ETO could stigmatise client and product and calculate the cost more accurately from direct entropy such as the machine hour to product a certain product, so that they need non to guess the legitimate cost of that product by allocating cost according to estimation. Besides, collectible the process of automatic, direct labor dollar amount but could not reflect the real find out of burden cost as before. So it is necessary to take other related factor into account when allocating burden cost and more detailed analysis o f the allocation basis is needed. The allocation result of three-burden-pool is listed on a cut floorSince the three-burden-pool system is most accurate in allocating burden cost among those three methods, it is preferable. However, it does not mean the three-burden-pool system is perfect. Because this system provides more accurate and detailed information of the runance process, it will cost more than the other two methods. In addition, the redesign of the three-burden-pool system could be expensive too repayable to the complexity of the system. In order to meliorate this system, ETO needs to pay attention of the consanguinity of cost and benefit. Besides, ETO could set up a system that is easy and effective to perform to save the cost of implicating three-burden-pool.Besides the consideration of proposed cost allocation methods, Seligram should also fit out the modernistic equipment into an appropriate cost pool which indicates a more reliable estimation. assumptive that new-sprung(prenominal) equipment has a separate cost center, all variable cost, fixed cost and depreciation will be report separately. The burden rate is only base on the machine hours of new equipment which ar 400hr ( family1) and 2400hr (Year2-8). Additionally, we use Double-decline method for depreciation. Balance is shown in Exhibit4. The separate burden rate for Year 1 would be much higher than those in the following years due to set up costs (Exhibit 5). incumbrance rates combined with main testing room be calculated in Exhibit 6.All combined burden rates be much lower than the separate costing rates. We recommend choosing a separate cost center for new equipment, even though the rates are much higher. Due to the current pip that lower costs for more complex components, which is abnormal, separate method would reflect more accurate and reliable costs of new imported machines. Obviously, combined method would capture the presentation of true costs. The costs are reduce d by other factors in main testing room. Higher burden rates are more probable that these new machines have higher cost in essence and also they are just for testing components from several ad hoc clients. Higher burden rates are more accurate.