Wilkerson Company Case Summary

Retail Segment Retail Segment Results (millions) Sales Cost of sales Gross margin SG&A expenses (a) EBITDA

Question 1: Using budget data, how many motors would have to be sold for Waltham Motors Division to breakeven?

Irrelevant Costs, Insurance (General Liability, Physical Damage, Workers Compensation, Health insurance), Security, Depreciation, Salaries Benefits, Bad Debt Expense, Permits, Rental Equipment, Payroll Taxes, Accounting Fees, Supplies, Computer Maintenance, Miscellaneous.

1. For financial accounting purposes, what is the total amount of product costs incurred to make 10,000 units?

* The variances are due to the Mile High Cycle company not forecasting for increased production. The company budgeted for the production of 10,000 cycles but the actual production was 10,800 units. When the company increased production, the production efficiency decreased. The company had to use or rework parts that added extra cost to the expenses; the reworked parts added $25,000 of extra expenses to the wheel assembly production and $45,000 to the final assembly process. The material,

Model trains for sale to toy stores are produced by Whistle Stop Incorporated, a small manufacturing company. Whistle Stop also has a small service department that repairs customers’ model trains for a fee. The company has been in business for five years. At the end of the most recent fiscal year, November 30, 2011, the accounting records reflected total assets of $500,000 and total liabilities of $200,000. During the current fiscal year ending November 30, 2012, the following summarized events occurred:

Wilkerson employs a Normal Cost System, which means that they use predetermined overhead rates along with actual costs for direct material and direct labor. Normal costing systems are appropriate when overhead costs are a relatively small percentage of total manufacturing costs and product diversity is limited. For Wilkerson, normal costing does not make sense. Overhead costs make up over 50 percent of total manufacturing costs and their product offering is relatively more diverse. This indicates that the current accounting system in place may be distorting costs significantly. Supporting data:

As Motorking Corporation considers introducing its now “gas extender” product into the market, the management must consider various factors to determine if this is a good financial move. The production manager needs to determine if the product will generate a profit for the corporation, how much product is expected to sell to determine how much to produce and how much to outsource.

Manufacturing overhead Rent on production equipment........ $ 6,000 Insurance on factory building ....... 1,500 Depreciation on factory building............................................ 1,500 Utility costs—factory........................ 900 Property taxes on factory building............................................ 400 Miscellaneous expenses— factory .............................................. 1,000 Total manufacturing costs..................... Total cost of work in process ...............

According to this method, every unit of the product is assigned all direct, fixed, and variable costs. This method includes the cost of direct materials and labor as well as a portion of the overhead costs associated with it in the final costing of every unit of the product.

Martin Company is a company that manufactures computer chips and cellular phones. As the assistant chief accountant at Martin Company, AggiePride Nationwide was in charge of preparing a trial balance so that the financial statements could be prepared and released to management and regulatory agencies. With the deadline, 4 p.m., slowly approaching Agg-ie was om a rush to do her task. During his completion of the trial balance, Agg-ie noticed that the total credits exceeded debits by $1,000. Agg-ie decided to add the difference to Equipment because of the large account balance.

Threats are current or emerging elements that could change potentially challenge the company’s performance. Since Walter Caesar mix is already serving in 400 restaurants in the country and some other retailers like Safeway, the product is getting in demand in the market. With chances the product will enter the United States market, Walter will need to increase production significantly. Regarding this, the biggest threats that the company might encounter are a shortage of the natural resources. Because of these products contains natural ingredients, Walter Company should find more sources of natural ingredients inside and outside Canada to supply the demand in the

Prod cost per unit 65 65 Variable Method q1 q2 Year Year Period End Mar 31, '12 Jun 30, '12 2012 2011 Production Budget 25,000 50,000 125,000 100,000 Sales 2,500,000 2,500,000 10,000,000 10,000,000 Var Cost of Goods Sold 1,125,000 625,000 2,375,000 2,875,000 Var Sell & Admin Exp 500,000 500,000 2,000,000 2,000,000 Contribution Margin 875,000 1,375,000 5,625,000 5,125,000 Fixed Costs 500,000 500,000 2,000,000 2,000,000 Net Income 375,000 875,000 3,625,000 3,125,000 Var Cost of Goods Sold Beg Inventory 650,000 650,000 650,000 650,000 Var Mfg Costs 1,125,000 2,250,000 4,000,000 4,500,000 Goods Available 1,775,000

Finally, as with CJ Industries’ cost benefit analysis, Heavey Pumps ought to decide if they should continue to service CJ Industries. If so, perhaps consider changing from their current informal, noncontract basis to a more long-term agreement.

They are a small, local company that assumingly delivers quality products on time and at the convenience of their buyer’s needs. While their relationship with CJI appears to have been professional and successful, they will not be able to continue to supply CJI with all of their bilge pumps once the demand reaches 50 pumps monthly. This situation forces them to consider their options which are: to expand their production capabilities or maintain their current production levels and risk losing their business with CJI.