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Seligram Inc. Essay

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Seligram Inc.

1. The existing system at ETO began to fail because direct labor hours per lot began to decrease due to vendor certification. Vendors would do the primary testing and ETO would only be required to test a small sample of each lot to verify the results were valid. In the marketplace, ETO’s prices were lower than outside competition for testing complex parts, yet the prices were higher for elementary testing. Another important factor to consider is that engineering support increased. This led to additional burden costs, which also varied from part to part.
High-technology components were tested using more automated test equipment. These tests took longer, but did not require as many hours of direct labor. The test
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Using the cost system proposed by the manager, the prices for the more automated tests would go up as the amount of machine hours used would be accounted for.
The consultant’s approach improves upon the manager’s suggestion. Creating separate pools for the test rooms would better align the costs to prices even more so. The prices could be varied between complex and elementary tests. The burden for the mechanical room per machine hour is nearly twice that of the main room (112.63 vs 63.34). Parts tested using more hours in the mechanical room would cost more and prices for parts tested more in the main room would be reduced.
The new prices will be accepted by customers (Cooper, HBR, Reading Packet p50). They are very likely to be aware that the prices they were paying were higher or lower than those of competitors. So they will not be surprised when ETO’s prices become more in line with competitor’s pricing.
Assumption: The information about machine hours used per part is readily available at no additional cost. 4. A possible change to the plan proposed by the consultant would be to create pools based on the depreciation costs of a machine rather than which room the machine is located. There is no evidence that all test machines in the mechanical room have a higher depreciation expense than those in the main room. A part
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