Depreciation and Cost Essay

1. The primary start of the current system to fail is the use of a angiotensin converting enzyme burden rate. Burden costs of the interrogation rooms as well as other costs such as admin were grouped into a adept cost syndicate and then divided by the total labor dollars. This resulted to a single burden rate of 145% of train labor dollars (cost driver).This method is not appropriate for Seligram because the information on the case present that direct labor hours and machine hours vary by product line and activity. In addition, the burden cost of the main and test room also significantly vary. Therefore, using a single burden rate does not provide the true cost of the product, as it assumes all products consume direct labor and overhead in the same proportion.2. Cost for each system are as follows3. I prefer the system proposed by the consultant because it is the most detailed, therefore entrust produce more faithful costs.4. The ideal allocation base should have a direct cau se-and-effect relation with the costs incurred. Based on the data provided in the case, it appears that the consultants proposed cost system is adequate because it considers the appropriate cost syndicate and allocation base. However, it should be noted that developing a cost system that is more detailed contain the use of more time and resources. There needs to be a proper balance amidst accuracy and cost.5. There is significant cost involved in the purchase of new equipment. Although the machine volition be located in the Main Room, I would use a separate cost pool when calculating the burden rate of the new machine. The purchase price of the machine is $2 million. I will add the one-time installation and programming cost to the acquisition cost of the machine since these costs are needful in order to get the machine ready for use.I will calculate depreciation establish on the machines practical capacity over its estimated life, instead of forked declining method. It seems t hat the use of double declining balance method of depreciation is inappropriate for allocation of costs because this method incurs higher depreciation in the early years, although the utilization is lower in the early years. By using practical capacity as the base, I am able to properly match the cost with the use of the machine.