Seligram Case Study

Question 1 There are mainly three factors leading to the failure of the existing system at ETO. First, there has been a steady decline in direct labor hours per lots and fewer test lots. Such a decline is mainly due to an increased dependence on vendor certificate, which is a key component of JIT delivery. Number of tests being done by ETO reduces because the suppliers did the testing by themselves. Second, there is a shift …

…The burden rate assigned to the products would be calculated as follows: (First year Depreciation cost + Engineering requirements + Estimated overhead)/total hours*utilization percentage $825,000 / (4000hr*10%) = $2062.5 per hour The new machine's burden rate would be allocated according to the jobs which actually use it. In other words, we only allocate the cost of machine to the relevant jobs. As a result, the cost allocation would be based on the relevant activities and could be more reliable.