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Copy of Seligram, Inc

Electronic Testing Operations
by

Craig Lee

on 21 February 2013

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Transcript of Copy of Seligram, Inc

Electrical Room
Rate per Machine Hour Chelsea Bess
Paul Biondolillo
Dylan Ciarletta
Shannon Duquesnay Seligram, Inc. Manufacturing Company
What is Seligram, Inc.? Defense Related
Products

Aerospace and Naval Products History of the Electronic Testing Operations Before 1979 After 1979 11 seperate divisions of electronic testing 1 centralized electronic testing center
Estimated to save Seligram $20 million over the first 5 years
Operates as a cost center
Very expensive and inefficient
90% of its testing capacity is devoted to internal divisions How does ETO operate? 10% of ETO's capacity is devoted to outside customers 1979 (cc) image by jantik on Flickr 1988 Centralized division of ETO takes over 11 seperate divisions of electronic testing Electronic Testing Operations (ETO) Functions of testing include: Integrated circuits
Diodes
Transistors
Capacitors
Resistors
Transformers Components Tested: Why? Limited marketing
Meet cost and service requirments for Seligram, Inc. Electrical Testing Mechanical Testing Solderability
Component burn-in
Thermal Shock
Lead straightening
Leak Detection Electrical Input/Output in volts
Measuring component specifications A centralized testing division of Seligram, Inc. Highly technical industry
Why is ETO so important? Tests about 35-40 million components per year If defective components are not caught, the cost of repair could exceed the entire cost of the manufacturing process Defective Resistor
Cost Detected BEFORE manufactured Detected AFTER manufactured $0.02 > $1,000 Cost Object Direct Labor Direct Materials Burden ( MOH) Military specifications require extensive testing Main area of concern Current Costing System Service Sector Service Sector How do we account for costs? Normal Costing System Direct Labor: Uses actual amounts
Man. Overhead: Uses budgeted amounts
Direct Materials: Nonexistent Cost Object= Direct Labor $ + (Burden Rate)(Direct Labor) Job Costing Formula Burden Rate = $4,713,982 / $3,260,015 = 145% Assumption: All product lots use Direct Labor and Overhead in the same proportion Current Component Lot Costs What kinds of testing are allocated too little cost?

What kinds of testing are charged too much cost?
Issues with the Current Costing System Accounting Manager's Solution Cost Object Direct Labor Direct Materials Burden ( MOH) Administrative and Technical Functions
Rate per Direct Labor $ All other Burden Costs ( Electrical and Mechanical)
Rate per Machine Hour Main area of concern Accounting Manager's Costing System This system uses two seperate cost pools Job Costing Formula Direct Labor Dollar Allocation Base
Machine Hour Allocation Base Burden Rate= Engineering + Administrative Burden $ / Direct Labor Dollars
Machine Hour Rate = Other Burden $/ Machine Hours A) ICA= 917 + (1.45)($917)= $2,246.65

B) ICB= 2051 + (1.45)($2,051)= $5,024.95

C) Capacitor= $1,094+ (1.45)($1,094)= $2,680.30

D) Amplifier= $525+ (1.45)($525)= $1,286.25

E) Diode= $519+ (1.45)($519)= $1,271.55

Total: $12,509.70 A) ICA = $917 + (0.2)($917) + 80(18.5) = $2,580.40

B) ICB = $2,051 + (0.2)($2,051) + 80(40) = $5,661.20

C) Capacitor = $1,094 + (0.2)($1,094) + 80(7.5) = $1,912.80

D) Amplifier = $525 + (0.2)($525) + 80(5) = $1,030.00

E) Diode = $519 + (0.2)($519) + 80(12) = $1,582.80

Total: $12,767.20
Accounting Manager's Lot Costs A) ICA = $917 + (0.2)($917) + ($63.34)(8.5)+ ($112.63)(10) = $2,765.09

B) ICB = $2,051 + (0.2)($2,051) + ($63.34)(14)+ ($112.63)(26) = $6,276.34

C) Capacitor = $1,094 + (0.2)($1,094) + ($63.34)(3)+ ($112.63)(4.5) = $2,009.66

D) Amplifier = $525 + (0.2)($525) + ($63.34)(4)+ ($112.63)(1) = $995.99

E) Diode = $519 + (0.2)($519) + ($63.34)(7) + ($112.63)(5) = $1,629.33

Total: $13,676.41
Consultant's Cost System Job Costing Formula Burden Rate= Direct Labor + (Burden Rate)(Direct Labor) + Main Room + Mechanical Room Machine- Hour Rate= $2,103,116 / 33,201 = $63.34 per hour
( Main Test Room) Machine-Hour Rate= $1,926,263/ $17,103 = $112.63 per hour
(Mechanical Test Room) Burden Rate= Direct Labor + (Burden Rate)(Direct Labor) + (Machine Rate)(Hours Used)

Ratio of Overhead to DL$ > 1.45 UNDERALLOCATED
Otherwise OVERALLOCATED Cons Current System Accounting Manager System Consultant System Cost Accounting Systems Current System Consultant's Solution Accounting Manager's Solution One Cost Pool Administrative
Mechanical Room
Main Electrical Room Two Cost Pools Three Cost Pools Administrative Mechanical Room Main Electrical Room Mechanical Room
Main Electrical Room Administrative Administrative
Mechanical Room
Main Electrical Room

Which System is Preferrable? Let's weigh our options! (cc) photo by medhead on Flickr Pros (cc) photo by medhead on Flickr Pros Cons (cc) photo by medhead on Flickr Cons Pros Existing System Simple Concept Has worked in the past Obsolescense Costs are allocated in same proportion for all components 1 cost pool Uses a machine hour allocation base and DL $ Low Cost Future Machines? 60 Hourly Personnel
40 Administrative Staff 3 Cost Pools Complex High Costs Which is the best system? ..... but Burden Rates aren't even close Using a PRODUCT PRICING cost system so we include period costs ER= $63.34 per hr
MR= $ 112.63 per hr Why? So the burden rates should be similiar.... Cost Object Direct Labor Direct Materials Burden ( MOH) Administrative and Technical Functions
Rate per Direct Labor $ Main area of concern Consultant's Costing System ER= 33,201 hours
MR= 17,103 hours Machine Room
Rate per Machine Hour ICB uses 14 hrs in ER and 26 in MR! Consultant's System Consultant's Solution Three seperate cost pools Overallocate Costs! What if Burden$ for each room is different? Potential Future Benefits Allocation Base: Direct Labor $ Machine Hours Allocation Base Machine Hours Allocation Base Direct Labor $ Allocation Base

Machine Hours Allocation Base Direct Labor $ Allocation Base BR = Burden $ DL $ Current System: Obsolete
Accounting Manager System: Most Accurate
Consultant's System: Not accurate for all products Proof: Product ICB Burden Rate= Overhead/ Machine Hours Main Room: 2.1 Million of MOH
Mechanical Room: 1.9 Million of MOH This assumes each product uses a ratio of 33:17 Consultant ICB= $ 6,276.34 Manager
ICB= $5,661.20 (14)(63) + (26)(112) (40)(80) Accountant Manager's Solution is the best for now Final Decision Machine Hour Rate*Burden Rate Properly allocates the cost of each product
Seperates Machine Hours and Direct Labor $ Allocation Bases
New Machine purchase for the Main Room
Lowers Direct Labor $
Large Increase in Burden Rate
10% usage now but projected for 60% Effects of the New Machine
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