Seligram Incorporations (Electronic testing operations)

I.Description of the existing be carcassThe existing cost system of ETO is really simple.

ETO stands for a cost subject matter which concerns the entire division. This cost center is divided in two cost components: hold labour party and allocated burden.

Direct labor costs for each type of corporation are traced directly to the products whereas burden is the only one cost pool.

The burden cost includes costs related to each of the interrogation rooms, engineering costs and administrative costs. commove costs are divided by the sum of direct labor which allows us to calculate the burden rate.

Indeed, according to the calculations, the burden rate is be to: (Total burden $ / Direct labor $) x 100 = ($4,713,982 / 3260,015) x 100 = 145%.

The existing cost system squeeze out be represented by the following diagram: computer science of burden rate for the existing cost system:Burden rateTotal burden costs$4.713.982,0Total direct labor dollars$3.260.015,0=4.713982,0/3.260.015,0*100=144,6% powerful rate =145%Why does the existing cost system fail?This system was based on the fact that direct costs and overhead are consumed in the same similarity for all product testing. However, the three following reasons show that it is no longer the case.

Firstly, due to the implementation of the vendor certification and the Just-in-time delivery, some products are already tested and do not need any further tests.



There are so not concerned by the allocation of costs and ETO will event a decreasing number of tests.

Then, the firm faces outsourcing, that is to say a movement from direct towards to indirect cost. This new trend leads to a decrease in direct costs and to an increase in indirect costs.

Lastly, new components are requiring more and more postgraduate technology tests. They consume highly automated equipment and require diametric testing procedures compared to other products. ETO will need less and less...

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