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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 from simple inspection services to broader-based test technology Although ETO provides engineering supports on complex parts outside testing services are even cheaper esp on large lots when only elementary testing is required Lastly the existing testing equipment is getting out-dated and is unable to cope with the pace with new developments in high-technology components Also the very expensive highly automated equipment is required to test the new high-technology components That equipment provides longer test cycles and more test data per part Such an increased automation would reduce direct labor needed to absorb depreciation costs for ETO Charges for testing go up due to an increase in burden rates Therefore ETO notices that the number and frequency of complaints from the customers are amplified Question 2 The Reported Cost of 5 Components under the Existing System ProductDLBurdenDLBurden RateAllocated Overhead ICA917917145224665 ICB20512051145502495 Capacitor1094109414526803 Amplifier525525145128625 Diode519519145127155 Total125097 The Reported Costs of the 5 Components under the System proposed by the Accounting Manager Two-Cost Pool ProductDirect Labor DL RateMachine HourMachine Hour RateAllocated Overhead IC A91711004185148025804 IC B 20512461240320056612 Capaciter1094131287560019128 Amplifier52563054001030 Diode51962281296015828 Total127672 Reported costs of the five components described in the system proposed by the consultant ProductDL DL rate 02Main Test 6334Mech Test 11263TOTAL IC A91718345383911263276509 IC B2051410288676292839627634 CAP10942188190025068532009673 AMP525105253361126399599 DIO51910384433856315162933 Total13676423 As for the comparison of the 3 methods used the first method the existing one would relatively bias against jobs with high direct labor cost but
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