What changes does ETO face 10 Single Cost Pool System Why do these changes make

What changes does eto face 10 single cost pool system

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What changes does ETO face?
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10 Single Cost Pool System Why do these changes make the current system obsolete? What evidence do we have? Why is this a problem?
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11 Single Cost Pool System Example 1 Assume two types of components A: requires extensive testing (long labor hours) B: requires little testing (few labor hours) Assume overhead consumed by each test is identical
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12 Single Cost Pool System Which component is over or undercosted? What will happen to the product mix?
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13 Single Cost Pool System Example 2 Assume two types of components A: requires expensive automated testing machinery B: requires very inexpensive equipment Assume the labor for each test is the same Which component is over- or undercosted? What happens to the product mix?
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14 Single Cost Pool System The current cost system also causes changes in strategy, because capital intensive procedure look favorable while labor intensive procedures look unfavorable
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15 Cost Allocation Scheme How to improve the cost system? Overhead is differently consumed in different parts of the production process (e.g., electronic and mechanical testing rooms)
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16 Two Cost Pool System Overhead costs Admin & Technical $685k Component Lot $685k Direct labor dollars Test room $4,029k $4,029k 50,304 = 80 per mach hr Directly traced Directly traced Machine hours $3,260k = 0.20 per Direct labor
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17 Two Cost Pool System Product cost = DL + 0.2*DL + 80*total hours What new insights does the new cost system provide? Product Direct Labor $ Overhead (DL) Total Machine hours Overhead (Machine hours) Cost ($) ICA 917 18.5 ICB 2,051 40 Capacitor 1,094 7.5 Amplifier 525 5 Diode 519 12
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18 Two Cost Pool System Since we now use machine hours as a cost driver, costs go up for… go down for…
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19 Three Cost Pool System How can we further improve the accounting system?
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