Siemens Electric Motor Works

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:

The process was labor intensive, but fully integrated manufacturing only required a $1 million investment in machine tools. Prefabricated parts were available for assemblers, who could enter the market with an investment of just $300,000. Furthermore, no competitor held any significant patents.

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.

The equipment is normally used to manufacture prototype boards, so its full capacity is never used. Since this new circuit board will not be manufactured in very large quantities, the machine will suffice, although some additional “add-ons” as well as supplies will be needed to produce this particular board. There is a 20% chance that equipment failure may cause a significant problem and, if it does, the impact is estimated at $50,000.

Going into 2004, Bob Moyer planned to produce 10,000 bicycles at Mile High Cycles. Construction of his bicycles includes the utilization of three departments, frames, wheel assembly, and final assembly. During this year, Mile High Cycles ended up actually producing 10,800 bicycles to meet higher than expected demand. Bob is curious as to whether or not he was successful in maintaining costs to meet these higher levels of demand.

1. What is the competitive situation faced by Wilkerson? The critical product in term of market competition is the pumps of Wilkerson Company. The pumps are Wilkersons major product line with a production of about 12,500 units per month. Pumps currently have the lowest gross margin among all products, because competitors had been reducing prices on pumps and Wilkerson adopted its prices in order to remain competitive and to maintain the volume. 2. Given some apparent problems with Wilkersons cost system, should executives abandon overhead assignment to products entirely by adopting a contribution margin approach in which manufacturing overhead is treated as a period expense? Our conclusion is, that they should not adopt

Under the existing cost system for the turning machine area, there are two direct costs and three cost pools for overhead costs. The two direct costs are simply Direct Labor and Direct Material, which are traced to the cost object, which is Machine Parts. The total overhead is split into three cost pools, which are the following: overhead applied on direct labor, overhead applied on material dollars, and overhead applied on ACTS machine hours. Furthermore, each cost pool is broken down into direct and period sub categories. The mentioned cost pools for the following cost drivers: Direct Labor dollars, Material dollars, and machine hours.

• This cost method does not provide the best system for JDCW’s cost allocation. By using only three overhead rates the present system grossly undermines the true production costs since other activities of the production process are not acknowledged.

7. Though numbers given in the cost data can not be contested, I would definitely contest the way total cost has been computed. The item 345 department operates within a large manufacturing facility that churns out number of other products too. Hence judging the profitability of item 345 on the basis of total cost is not practical.

First, we have identified if there is really an insufficiency in the amount of selling prices set by the Sales Department, in reference to Exhibit 1 of the case. We did this through identifying the maximum amount of overhead costs that the company can incur for the three products and comparing it with the total overhead costs. See Table 1 for details.

with a number of strategic issues facing a capital-intensive, mature industry. Their product costing system was

John Deere Component Works (JDCW), subdivision of John Deere and Co. was in charged specifically of the manufacturing of tractor component parts. The demand for JDCW’s products had problems due to the collapse of farmland value and commodity prices. Numerous and constant failures in JDCW’s competition for bids, alerted top management to start questioning their current costing methods. As an outcome, the analysis has to be guided to research on the current costing methods with the intention of establishing legitimacy and to help the company in adopting a more appropriate costing system.

For my Independent Study project, I decided to work with Matthew Doherty to design and build a solenoid motor using Inventor and 3D printing technology. The purpose of this project was to expose us to the greater functions of 3D printing as well as a way to study electricity and the mechanical properties of engines. Because of the vast application of solenoids, specifically in automobiles, we decided that building a solenoid engine would provide us with the best model to study both electrical and mechanical design properties and functions. In prior classes, specifically Principals of Engineering and (AP) Physics, we have been exposed to basic models of engines, but we have never been able to actually

The overhead spending is greater than the direct labour costs or the direct material costs for all three product lines- Valves, Pumps and Flow Controllers (Exhibit 2). Overheads are simply charged at 185% constant for three diverse products. The fact that there is huge variance in the number of units produced per production run- it is 375 for valves and 18 for flow controllers per production run. This shows the reason for high overheads cost too. Hence it calls for checking the cost allocation system of the company.

The current method of apportioning production overheads based on direct labour hours can be described as a traditional approach to product costing. In a manufacturing company’s financial statements, each item produced must be allocated some of the production overheads to make the statements compliant. Sometimes the individual costs of these items can be calculated incorrectly based on overall production overhead and the system of allocating in place, however the overall financial statement can still be accurate. This traditional method of allocating the production