Wilkerson company

1161 Words Oct 10th, 2014 5 Pages
WILKERSON COMPANY
Contents

EXECUTIVE SUMMARY:
Wilkerson Company a supplier of products to manufacturers of water purification equipment is facing an apprehension because competitors had been reducing prices on one of the company’s main product line pumps. The president of Wilkerson Company Robert Parker was discussing operating results of the previous month with controller and manufacturing manager.
The product lines for the Wilkerson are pumps, valves and flow controllers. Pump is the major product line for Wilkerson. The company is forced to reduce its price of pumps as its competitors are lowering the price. Since they wanted to maintain the sales volume they are reducing their price which then lowers
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Develop a diagram to show how costs flow from factory expense accounts to products.
Wilkerson’s existing cost system is based on traditional cost system, where all the manufacturing overhead is expressed as a percentage of the direct labor.

4. 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 operated product costs and profitability? What causes any shifts in cost and profitability?

Activity Based Costing Method:
Allocation of activity to corresponding cost drivers:
Activity
Cost Driver
Machine Related Expenses
Machine hours
Set up Labor
Production
Receiving and production control
Production runs
Engineering
Hours of engineering work
Packaging and shipping
No of shipment

Change in status of profitability and product cost
Profitability:

Valves
Pumps
Flow Controllers
Sales Price
$86.00
$87.00
$105.00

Traditional Costing Method :
Standard per unit costs
$56.00
$70.00
$62.00
Gross Margin(%)
34.9%
19.5%
41.0%

Activity Based Costing:
Standard per unit costs
$46.17
$58.20
$115.38
Gross Margin(%)
46.3%
33.1%
-9.9%

Product Cost: Valves
Pumps
Flow Controllers
Traditional Costing Method :
$56.00
$70.00
$62.00
Activity Based Costing:
$46.17
$58.20
$115.38
Net Change
17.6%

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