2. The difference in the gross margin for flow controllers when the Traditional Cost System is used and when the ABC Cost System is used is caused by the different allocation approach of overhead, increasing manufacturing overhead from $30.00 to $83.38 significantly. Flow controllers were low volume products, but they required more resource. Due to the fact that flow controllers required not only more components and more labor, than pumps or valves, for each finished unit, but also more production runs and shipments, these operating process contributed substantial overhead costs. These overhead costs, however, were not be allocated in the traditional cost system. Compared to the traditional cost system, in which the overhead costs just were allocated to products as a percentage of production-run direct labor cost easily, the ABC cost system provides more accurate information about overhead costs.
3. In order to maintaining Wilkerson Company’s market share of valves and pumps, they have the room to reduce valves and pumps’ price, although they may do not need to reduce their price. Meanwhile, they should increase the price of flow controllers to