1

Managerial AccountingManagerial AccountingFinal PresentationFinal PresentationSeligram, Inc.: Electronic Testing OperationsSeligram, Inc.: Electronic Testing Operations

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

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

Comparison among three managerial accounting method (1/4)Comparison among three managerial accounting method (1/4)

Existing MethodExisting

Product Direct Labor $ Main Room Mech. Room Total Burden $ TOTAL $ICA $917.00 8.5 10.0 18.5 $1,329.65 $2,247ICB 2,051.00 14.0 26.0 40.0 $2,973.95 $5,025CAPACITOR 1,094.00 3.0 4.5 7.5 $1,586.30 $2,680AMPLIFIER 525.00 4.0 1.0 5.0 $761.25 $1,286DIODE 519.00 7.0 5.0 12.0 $752.55 $1,272

$7,403.70 $12,510

1998 Budget

Direct Labor $3,260,015Total Overhead $4,713,982Burden Rate 145% =TOH/Direct Labor dollar

Burden $Formula = Direct Labor $ x 145%

-- Machine Hours --

Existing MethodExisting

Product Direct Labor $ Main Room Mech. Room Total Burden $ TOTAL $ICA $917.00 8.5 10.0 18.5 $1,329.65 $2,247ICB 2,051.00 14.0 26.0 40.0 $2,973.95 $5,025CAPACITOR 1,094.00 3.0 4.5 7.5 $1,586.30 $2,680AMPLIFIER 525.00 4.0 1.0 5.0 $761.25 $1,286DIODE 519.00 7.0 5.0 12.0 $752.55 $1,272

$7,403.70 $12,510

1998 Budget

Direct Labor $3,260,015Total Overhead $4,713,982Burden Rate 145% =TOH/Direct Labor dollar

Burden $Formula = Direct Labor $ x 145%

-- Machine Hours --

1 ． Existing Method

5

Accounting Manager's MethodBurden 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 $2,580ICB 2,051.00 14.0 26.0 40.0 $410.20 $3,200.00 $3,610.20 $5,661CAPACITOR 1,094.00 3.0 4.5 7.5 $218.80 $600.00 $818.80 $1,913AMPLIFIER 525.00 4.0 1.0 5.0 $105.00 $400.00 $505.00 $1,030DIODE 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 $ --

Accounting Manager's MethodBurden 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 $2,580ICB 2,051.00 14.0 26.0 40.0 $410.20 $3,200.00 $3,610.20 $5,661CAPACITOR 1,094.00 3.0 4.5 7.5 $218.80 $600.00 $818.80 $1,913AMPLIFIER 525.00 4.0 1.0 5.0 $105.00 $400.00 $505.00 $1,030DIODE 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

6

Consultant's MethodBurden 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 $2,765.10ICB 2,051.00 14.0 26.0 40.0 $410.20 $886.83 $2,928.31 $4,225.34 $6,276.34CAPACITOR 1,094.00 3.0 4.5 7.5 $218.80 $190.03 $506.82 $915.66 $2,009.66AMPLIFIER 525.00 4.0 1.0 5.0 $105.00 $253.38 $112.63 $471.01 $996.01DIODE 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 1Main Room (3) Formula = Mech. Room's Machine Hours x Machine-Hour Rate 2

-- Machine Hours -- -- Burden $ --

Consultant's MethodBurden 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 $2,765.10ICB 2,051.00 14.0 26.0 40.0 $410.20 $886.83 $2,928.31 $4,225.34 $6,276.34CAPACITOR 1,094.00 3.0 4.5 7.5 $218.80 $190.03 $506.82 $915.66 $2,009.66AMPLIFIER 525.00 4.0 1.0 5.0 $105.00 $253.38 $112.63 $471.01 $996.01DIODE 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 1Main 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

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

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 should be properly incorporated in the cost of goods sold.

Product Direct Labor $ Main Room Mech. Room Total Three Pools Two Pools One Pool Three Pools Two Pools One PoolICA $917.00 8.5 10.0 18.5 $1,848.10 > $1,663.40 > $1,329.65 $2,765.10 2580.4 2246.65ICB 2,051.00 14.0 26.0 40.0 $4,225.34 > $3,610.20 > $2,973.95 $6,276.34 5661.2 5024.95CAPACITOR 1,094.00 3.0 4.5 7.5 $915.66 > $818.80 < $1,586.30 $2,009.66 1912.8 2680.3AMPLIFIER 525.00 4.0 1.0 5.0 $471.01 < $505.00 < $761.25 $996.01 1030 1286.25DIODE 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 $Product Direct Labor $ Main Room Mech. Room Total Three Pools Two Pools One Pool Three Pools Two Pools One PoolICA $917.00 8.5 10.0 18.5 $1,848.10 > $1,663.40 > $1,329.65 $2,765.10 2580.4 2246.65ICB 2,051.00 14.0 26.0 40.0 $4,225.34 > $3,610.20 > $2,973.95 $6,276.34 5661.2 5024.95CAPACITOR 1,094.00 3.0 4.5 7.5 $915.66 > $818.80 < $1,586.30 $2,009.66 1912.8 2680.3AMPLIFIER 525.00 4.0 1.0 5.0 $471.01 < $505.00 < $761.25 $996.01 1030 1286.25DIODE 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

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

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

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

Managerial AccountingManagerial AccountingFinal PresentationFinal Presentation 　　 ‐‐ 　　 End of FileEnd of File

Goshi Fujimoto (201247529)Natsuhi Inoue(201247507)

Chie Fukubayashi(201247528)Tsukasa Mori (201247531)

Kenichi Nakamura(201247525)