Seligram, Inc.: Electronic Testing Operations – Costs of the Five Components
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Discussion Questions: Seligram, Inc.: Electronic Testing OperationsQuestion 2. Calculate costs of the five components described in Exhibit 6 as reported by:a. Costs of the five components as reported by the existing system:Burden rate = Total Burden / Direct Labor Total Burden = $4,713,982 Direct Labor = $3,260,015 Burden rate = 144.60% Effective rate = 145%, which means gor every dollar of direct labor cost we add $1.45 of overhead. ProductDirect Labor $OverheadTotal CostsICA$ 917$ 1,329.65 $ 2,247 ICB$ 2,051$ 2,973.95 $ 5,025 CAPACITOR$ 1,094$ 1,586.30 $ 2,680 AMPLIFIER$ 525$ 761.25 $ 1,286 DIODE$ 519$ 752.55 $ 1,272 b. Costs of the five components as reported by the accounting manager:The division accountant proposes to directly trace burden to two cost pools:Burden related to the administrative and technical functions which is charged on a rate per DL$All other burden costs charged based on machine hoursAs per Exhibit 5:Effective machine-hour rate = $80Effective burden rate per direct labor $ = 20%ProductOverhead 1Overhead 2Total OverheadTotal CostICA183.401,4801,663.40 $ 2,580.40 ICB410.203,2003,610.20 $ 5,661.20 CAPACITOR218.80600818.80 $ 1,912.80 AMPLIFIER105.00400505.00 $ 1,030.00 DIODE103.809601,063.80 $ 1,582.80 Total7,661.20 $ 12,767.20
c. Costs of the five components as reported by the system proposed by the consultant:Consultant recommended to implement a three-burden-pool system utilizing separate burden centers for each test room and a common technical and administrative pool. Burden would be directly traced to each of the three burden pools. Burden costs in the test rooms would be allocated on a machine-hour basis. Technical and administrative costs would continue to be charged on a rate per direct labor dollar. We first find burden rates for each of three profit pools by dividing overhead of each test room to machine hours of that room and divide technical and administrative costs to total direct labor to find third rate.CategoryCostsMachine hours Machine hour rates ($)Burden rate for Tech and Adm costsDirect Labor 3,260,015Electronic test room2,103,11633,20163Main test room1,926,26317,103113Technical and administrative684,60321%Total overhead4,713,982Total cost7,973,997Then to find overhead of each product, we multiply machine hour rates to working hours of each product and burden rate for technical and administrative costs multiply by direct labor of each product. Main Test RoomMech Test RoomPer DL$ProductOverhead 1Overhead 2Overhead 3Total CostsICA$ 535.5$ 1,130.0$ 183.4$ 2,766ICB$ 882.0$ 2,938.0$ 410.2$ 6,281CAPACITOR$ 189.0$ 508.5$ 218.8$ 2,010AMPLIFIER$ 252.0$ 113.0$ 105.0$ 995DIODE$ 441.0$ 565.0$ 103.8$ 1,629Total$ 2,300$ 5,255$ 1,021$ 13,681