Wilkerson Case Essay

1344 Words Aug 6th, 2016 6 Pages
1. Describe Wilkerson’s competitive environment. At a minimum, include any barriers to entry, industry maturity, the specific market and production complexity for each product, and marketing concerns.

Wilkerson is a manufacturing company specializing in manufacturing components for water purification systems; the company makes valves, pumps, and flow controllers. Wilkerson is a supplier to companies that actually manufacture the water purification equipment. The relevant officers of the organization are:

* Robert Parker, President * Peggy Knight, Controller * John Scott, Manufacturing Manager

According to the United States International Trade Commission,

“U.S. exports of water filtration and purification equipment
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Marketing is challenging for Wilkerson because they are no longer holding a competitive advantage in the valve product line, nor are they price leaders in the pump line.

2. Considering your answer to item 1, the first three exhibits, and related introductory discussion, is it likely that the accounting system may distort product profit significantly? Why? (Ignore general, selling, and admin expense.)

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:

| Cost Profile Snapshot | DL | 271,250 | 17.67% | DM | 458,000 | 29.83% | MOH | 806,000 | 52.50% | | $1,535,250 | |

3. Briefly describe how the current production cost assignment system works. What are the consumption ratios (activity percentages) for assigning manufacturing overhead to each product at present?

The current MOH is allocated as a percentage of