Managerial Accounting Case Essay

In the Seligram instance. the bing cost accounting system measured two constituents of cost: direct labour and load. All load cost. which is the operating expense. was grouped into a individual cost pool and was calculated merely by utilizing a load rate per direct labour dollar. This may do jobs since direct labour and operating expense are non consumed by the merchandises in the same proportion. Simply utilizing the same load rate is obsolescent. First of all. direct labour hours per batch tested had been steadily worsening. particularly with the addition of dependance on seller enfranchisement. This will ensue in the alteration of the load rate. Besides. this system distorts the monetary value to some extent. doing the monetary value for complex parts cheaper while monetary value for simple proving higher compared with monetary value for outside services. What is more. the effects brought from the debut of high -technology constituents would diminish the direct labour hr. All of this was swerving to higher load rates and overall higher rates. Cost allotment based on current load rate of 145 % is calculated within the Exhibit1.

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Having noticed of the jobs of the bing system. the accounting director proposed a two-burden-pool method to apportion the load cost. Under the two-burden-pool method. load cost has been divided into two pools: one is the load cost related to the administrative and proficient maps and the other is test related load. The former is calculated based on direct labour dollar. the latter one is calculated by utilizing machine hours. This method takes other factors that cause the load into history. which makes the cost allotment more accurate than the bing method. The consequence of two-burden-pool is as the follows.

The adviser proposed a more elaborate cost allotment method. i. e. separate load centres from each of each trial room and common proficient and administrative pool so that a three-burden-pool is formed. Under this method. load cost in trial suites would be allocated on a machine-hour footing. and proficient and administrative costs would go on to be charged on a rate per direct labour dollar. This method is more accurate in apportioning the load cost by supplying a cost of each merchandise or occupation.

Through this manner. ETO could distinguish client and merchandise and cipher the cost more accurately from direct informations such as the machine hr to merchandise a certain merchandise. so that they need non to think the existent cost of that merchandise by apportioning cost harmonizing to appraisal. Besides. due the procedure of automatic. direct labour dollar sum entirely could non reflect the existent image of load cost as earlier. So it is necessary to take other related factor into history when apportioning load cost and more elaborate analysis of the allotment footing is needed. The allotment consequence of three-burden-pool is listed below:

Since the three-burden-pool system is most accurate in apportioning burden cost among those three methods. it is preferred. However. it does non intend the three-burden-pool system is perfect. Because this system provides more accurate and elaborate information of the production procedure. it will be more than the other two methods. In add-on. the redesign of the three-burden-pool system could be expensive excessively due to the complexness of the system. In order to better this system. ETO needs to pay attending of the relationship of cost and benefit. Besides. ETO could put up a system that is easy and effectual to execute to salvage the cost of implicating three-burden-pool.

Besides the consideration of proposed cost allotment methods. Seligram should besides set up the new equipment into an appropriate cost pool which indicates a more dependable appraisal. Assuming that new equipment has a separate cost centre. all variable cost. fixed cost and depreciation will be reported individually. The load rate is merely based on the machine hours of new equipment which are 400hr ( Year1 ) and 2400hr ( Year2-8 ) . Additionally. we use Double-decline method for depreciation. Balance is shown in Exhibit4. The separate load rate for Year 1 would be much higher than those in the undermentioned old ages due to put up costs ( Exhibit 5 ) . Burden rates combined with chief testing room are calculated in Exhibit 6.

All combined load rates are much lower than the separate costing rates. We recommend taking a separate cost centre for new equipment. even though the rates are much higher. Due to the current state of affairs that lower costs for more complex constituents. which is unnatural. separate method would reflect more accurate and dependable costs of new imported machines. Obviously. combined method would act upon the presentation of true costs. The costs are reduced by other factors in chief testing room. Higher load rates are more sensible that these new machines have higher cost in kernel and besides they are merely for proving constituents from several specific clients. Higher load rates are more accurate.

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