Seligram, Inc.: Electronics Testing Operations

Topics: Cost accounting, Costs, Cost Pages: 2 (499 words) Published: November 16, 2014
Electronic Testing Operations (ETO), a division of Seligram, Inc., provided centralized electronic components throughout the 1980s. This centralization was estimated to save Seligram over $20 million in testing equipment investment over the next five years. ETO primarily tested for divisions within Seligram; however, was allowed to devote up to 10% of its testing capabilities to outside resources. Component testing is important for two main reasons. Firstly, if defective components are detected early in the manufacturing cycle, thousands of dollars could be saved due to the increased repair costs farther down the line in the manufacturing cycle. Secondly, a large amount of Seligram’s work is defense related. Naval and aerospace products have required extensive testing of components specifications. ETO performs both electrical and mechanical testing. ETO’s testing facility is divided into two rooms, the main testing room (used for electrical testing) and the mechanical room (used for mechanical testing). The existing ETO system’s cost accounting system is based on direct labor and burden. Burden is grouped into one single cost pool. Several trends in technology and the marketplace caused this cost accounting system to fail. There were three main trends that contributed to this failure. Firstly, direct labor hours per lot testing had been steadily decreasing over the past few years due to the increased popularity of Just-in-Time (JIT) delivery. A key component of JIT is vender certification which requires the suppliers to do primary testing of components before reaching Seligram. This reduced the number of tests needed to be performed by ETO. Secondly, there was a shift from simple inspection services to broader-based test technology. ETO was cheaper compared to outside sources with regards to the testing that was complex and required engineering support; however, was more expensive when only elementary testing was needed. In this instance, it would...
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