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Essay text:
Describe the existing cost system and calculate the cost of the 5 components in the case. What is wrong with the existing cost system?
The existing cost system measures direct labour and overhead. Overhead is grouped into a single cost pool that includes overhead costs associated with each of the testing rooms as well as the engineering overhead costs relating to software and tooling development and the administrative costs of the division.
ETO suppliers started to do the primarily testing themselves and send the components to ETO for more difficult and more expensive tests. The lot sizes decreased and the number of lots increased...
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