Siemens Electric Motor works

1081 Words Sep 27th, 2014 5 Pages
Q5. How does the “new system” trace the overhead costs of order processing and special components handling to the products?
Overhead cost per order (order processing rate) = DM$13800000/65625 =DM$210.29 per order
Overhead cost per special component (special component rate) = DM$19500000/325000= DM$60 per special component In order to adapt the new strategy of SEMW, new costing system uses the order processing rate and special component rate to trace the overhead costs of order processing and special components handling to the specific product. In the first formula, the order processing cost which is removed from support related costs of old system is DM13.8 million. The number of orders that the EMW actually filled is 65625 orders.
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The calculation of the reported costs of the five orders (A-E) under the traditional costing system is shown below.

Table 3:
Old system
Base Motor cost
# of different types of special components per motor
Special components cost
Total Manufacturing cost a
Support Related cost b
Total cost A
247
1
32.2
279.20
97.72
376.92 B
247
2
32.2*2
311.40
108.99
420.39 C
247
3
32.2*3
343.60
120.26
463.86 D
247
5
32.2*5
408.00
142.80
550.80 E
247
10
32.2*10
569.00
199.15
768.15
Notes:
a:Total manufacturing cost= cost of base motor+ cost of special component*number of types of special components b: Support-related overhead equals to 35% of pre-support manufacturing cost (e.g. Support related cost of A = 279.20 * 35% = 97.72)

Table 4:
# of motors each order
A
B
C
D
E
10
$3,769.20
$4,203.90
$4,638.60
$5,508.00
$7,681.50
20
$7,538.40
$8,407.80
$9,277.20
$11,016.00
$15,363.00
100
$37,692.00
$42,039.00
$46,386.00
$55,080.00
$76,815.00

Under the old costing system, we could calculate the base motor cost and cost of special components without support-related overhead, and calculate the support-related overhead separately which equals to 35% of pre-support manufacturing cost. The consideration of cost does not include the cost of resources required to process an order. Therefore, the number of types of
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