Looks into the uselessness of a cost design when technology is modified. In specific, it questions students to raise cost center’s numbers and the distribution modes. The company transits from a one-center, direct labor hourly design to a system where costs are based on three-center, direct labor and machine-hours.
Calculating Burden Rate- Existing System
Caluating Buden Rates Pool wise- Account Manager's system
Caluating Buden Rates Pool wise- Consultant's system
Calculating New machine's costs
If the New machine is treated as separate cost centre
If the New machine is treated as part of the main room
1. What caused the existing system at ETO to fail?
2. Calculate the reported costs of each of the five components under:
(a) The existing system;
(b) The system proposed by the accounting manager; and
(c) The system proposed by the consultant.
3. Which system is preferable? Why?
4. Would you recommend any changes to the system you prefer? Why?
5. Would you treat the new machine as a separate cost center or as part of the main test room? Why