Wilkerson Case Study Analysis Essay example

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Wilkerson Company Questions for Class Discussion 1. What is the competitive situation faced by Wilkerson? Wilkerson’s competitors have cut prices on their pumps, in order to maintain market share, Wilkerson also cut the price of their pumps. This dropped Wilkerson’s GM by about 15%. At the same time, Wilkerson was able to increase the price of their flow controllers by 10% without a drop in demand. The manufacturing manager now feels that the competitors’ valves are of equal quality as that of Wilkerson. Currently, the competitors have not changed their prices and GM has been maintained at 35%. Wilkerson should be aware that its competitors could start dropping the prices of their valves at which time, Wilkerson would need to…show more content…
Develop and diagram an activity based cost model using the information in the case. Provide your best estimates about the cost and profitability of Wilkerson’s three product lines. What difference does your cost assignment have on reported product costs and profitability? What causes any shifts in cost and profitability? Overhead costs are not in proportion to the production output because of the method they are using. This leads to inaccurate pricing and costing decisions. An Activity Based Costing System would help find the real relationship between the products produced and overhead. Cost pools > cost drivers > AB Cost Rate Cost Pool Amount Driver Amount Rate Machine Related Expenses 336,000 Machine Hours 11,200 $30/hr Setup Labor 40,000 Prod Runs 160 $250/run Rec & Prod Control 180000 Prod Runs 160 $1,125/run Engineering 100000 Hrs of Eng Work 1250 $80/hr Packaging & Shipping 150000 # of Shipments 300 $500/shipment Activity-Based Cost Calc per Product Product Valves Pumps Flow Controllers Units 7500 12500 4000 Direct Labor 75000 156250 40000 Direct Material 120000 250000 88000 Total Direct Costs 195000 406250 128000 Manufacturing Overheads Machine Related 112500 187500 36000 Setup Labor 2500 12500 25000 Rec & Prod Control 11250 56250 112500 Engineering 20000 30000 50000 Packaging & Shipping 5000 35000 110000 Total Manufacturing Overheads 151250 321250 333500 Total Cost Allocation 346250 727500 461500 Comparing between Costing
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