Managerial accounting final

1. 1
Managerial AccountingManagerial Accounting
Final PresentationFinal Presentation
Seligram, Inc.: Electronic Testing OperationsSeligram, Inc.: Electronic Testing Operations

2. 2
Agenda
1.What caused the existing system at ETO to fail?
2.Comparison among three managerial accounting
methods
3.Which system is preferable?
4.Accounting method for new machine

3. 3
What caused the existing system at ETO to fail?What caused the existing system at ETO to fail?
Competitive Situation
A shifting from simple inspection services to broader-
based test technology is required.

4. 4
Comparison among three managerial accounting method (1/4)Comparison among three managerial accounting method (1/4)Mangenril Aecou
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Existing Method
Existing
Product Direct Labor $ Main Room Mech. Room Total Burden $ TOTAL $
ICA $917.00 8.5 10.0 18.5 $1,329.65 $2,247
ICB 2,051.00 14.0 26.0 40.0 $2,973.95 $5,025
CAPACITOR 1,094.00 3.0 4.5 7.5 $1,586.30 $2,680
AMPLIFIER 525.00 4.0 1.0 5.0 $761.25 $1,286
DIODE 519.00 7.0 5.0 12.0 $752.55 $1,272
$7,403.70 $12,510
1998 Budget
Direct Labor $3,260,015
Total Overhead $4,713,982
Burden Rate 145% =TOH/Direct Labor dollar
Burden $
Formula = Direct Labor $ x 145%
-- Machine Hours --
1．Existing Method

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Accounting Manager's Method
Burden Total
Product Direct Labor $ Main Room Mech. Room Total (1) (2) TOTAL $
ICA $917.00 8.5 10.0 18.5 $183.40$1,480.00 $1,663.40 $2,580
ICB 2,051.00 14.0 26.0 40.0 $410.20$3,200.00 $3,610.20 $5,661
CAPACITOR 1,094.00 3.0 4.5 7.5 $218.80$600.00 $818.80 $1,913
AMPLIFIER 525.00 4.0 1.0 5.0 $105.00$400.00 $505.00 $1,030
DIODE 519.00 7.0 5.0 12.0 $103.80$960.00 $1,063.80 $1,583
$12,767
1998 Plan (Proposed Rates)
Rate Cost Pool $Direct Lbr $Machine Hrs
Rate per Direct Labor $ 20% $684,603 $3,260,015 Engineering & Admin Burden (1)
Machine-Hour Rate $80 $4,029,379 50,304 Other Burden Costs (2)
$4,713,982 $3,260,015 50,304
Burden $
Engineering & Admin Burden (1) Formula = Direct Labor $ x Rate per Direct Labor $
Other Burden Costs (2) Formula = Total Machine Hours x Machine-Hour Rate
-- Machine Hours -- -- Burden $ --
Comparison among three managerial accounting method (2/4)Comparison among three managerial accounting method (2/4)
2．Accounting Manager's Method

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Consultant's Method
Burden Total Three Pools
Product Direct Labor $ Main Room Mech. Room Total (1) (2) (3) TOTAL $
ICA $917.00 8.5 10.0 18.5 $183.40 $538.43 $1,126.27 $1,848.10 $2,765.10
ICB 2,051.00 14.0 26.0 40.0 $410.20 $886.83 $2,928.31 $4,225.34 $6,276.34
CAPACITOR 1,094.00 3.0 4.5 7.5 $218.80 $190.03 $506.82 $915.66 $2,009.66
AMPLIFIER 525.00 4.0 1.0 5.0 $105.00 $253.38 $112.63 $471.01 $996.01
DIODE 519.00 7.0 5.0 12.0 $103.80 $443.41 $563.14 $1,110.35 $1,629.35
$13,676
1998 Plan (Proposed Rates)
Rate Cost Pool $Direct Lbr $Machine Hrs
Rate/Direct Labor $ 20% $684,603 $3,260,015 Engineering & Admin Burden (1)
Machine-Hour Rate 1 $63 $2,103,116 33,201 Main Room (2)
Machine-Hour Rate 2 $113 $1,926,263 17,103 Mech. Room (3)
$4,713,982 $3,260,015 $50,304
Burden $
Engineering & Admin Burden (1) Formula = Direct Labor $ x Rate per Direct Labor $
Main Room (2) Formula = Main Room's Machine Hours x Machine-Hour Rate 1
Main Room (3) Formula = Mech. Room's Machine Hours x Machine-Hour Rate 2
-- Machine Hours -- -- Burden $ --
3．Consultant's Method
Comparison among three managerial accounting method (3/4)Comparison among three managerial accounting method (3/4)

7. 7
These graphs show difference between total costs of three types of costing
system for each component. The right graph shows the observation of the ratios
of “Direct labor” and “Machine hours”.
A difference between three systems depends on the balance of direct labor and
machine hours ratio. So when the direct labors ratio is less than machine hours
ratio, Consultant’s method shows the increment of the total cost.
Comparison among three managerial accounting method (4/4)Comparison among three managerial accounting method (4/4)

8. 8
Which system is preferable? Why?Which system is preferable? Why?
Consultant’s method is most accurate.
<Reasons>
Existing method does not reflect actual cost, which give a negative impact to
appropriate price setting.
Considering more demand for automation of the testing, the depreciation cost
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Product Direct Labor $ Main RoomMech. Room TotalThree Pools Two Pools One Pool Three PoolsTwo PoolsOne Pool
ICA $917.00 8.5 10.0 18.5 $1,848.10> $1,663.40> $1,329.65 $2,765.10 2580.4 2246.65
ICB 2,051.00 14.0 26.0 40.0 $4,225.34> $3,610.20> $2,973.95 $6,276.34 5661.2 5024.95
CAPACITOR 1,094.00 3.0 4.5 7.5 $915.66> $818.80< $1,586.30 $2,009.66 1912.8 2680.3
AMPLIFIER 525.00 4.0 1.0 5.0 $471.01< $505.00< $761.25 $996.01 1030 1286.25
DIODE 519.00 7.0 5.0 12.0 $1,110.35> $1,063.80> $752.55 $1,629.35 1582.8 1271.55
$13,676 $12,767 $12,510
-- Machine Hours -- Total Burden TOTAL $
Comparison among three methods

9. 9
Accounting method for new machine Accounting method for new machine
Introduction of　one more new　machine　will
　increase　the　depreciation　cost.　So　
if　a　burden　is　only calculated based on a
direct labor dollar, the cost of goods sold will not be
properly incorporated.
Therefore, unless a burden with machine hours ratio
is introduced as cost standard, wrong cost of goods
sold will be set which will lead to wrong price setting
and result in a negative impact to the company’s
profit.

10. 10
Total costs simulation for new machineTotal costs simulation for new machine
Considering the increase of machine hours and $500,000 annual
depreciation, total costs for each component by installing new
machine are greater than current system. However future total
costs will decline following by the increase of machine hours
since year 4 .

11. 11
Labor costs saving simulation for new machineLabor costs saving simulation for new machine
A benefit of installing new machine is definitely the reduction of
labor costs by making testing more automated. It is the sensitive
simulation for clarifying how labor costs reduction affects to total
costs. As discussed before, new costing system tends to show
both of increase and decrease, but installing new machine can
contribute from the viewpoint of entire of labor costs reduction.

12. 12
Managerial AccountingManagerial Accounting
Final PresentationFinal Presentation　‐　　‐　End of FileEnd of File
Goshi Fujimoto (201247529)
Natsuhi Inoue(201247507)
Chie Fukubayashi(201247528)
Tsukasa Mori (201247531)
Kenichi Nakamura(201247525)