Session 4: Wilkerson Co.
1. Use the production and operations data of Exhibit 4 to reallocate the manufacturing overhead in a manner that reflects the actual use of overhead resources. Diagram the new cost system using conventions that we developed in the earlier classes (e.g., trace all costs from accounting categories to products).
2. Calculate new total unit product costs for the valves, pumps and flow controllers. Compare the costs that you calculated to the standard unit product costs in Exhibit 2. What causes the different product costing methods to produce such different results? 3. How does your comparison above relate to what Wilkerson is experiencing in the market?
4. What would you recommend to Wilkerson? Why? What are the costs and benefits of your recommendation? Do you have an alternative recommendation? 5. Thought Question (Do not include in the written team solution): If Wilkerson adopted the new approach to allocating overhead that you have devised above and nothing else changed (e.g., production and sales volumes are identical, prices are left unchanged and the same production processes are employed), would costs be different after one year? How much higher or lower? Explain.
Session 4: Midwest Office Products
1. Based on the interviews and data in the case, estimate:
a. The cost of processing cartons through the facility
b. The cost of entering electronic and manual customer orders c. The cost of shipping cartons on commercial carriers
d. The cost per hour for desktop deliveries
2. Using this cost driver information, calculate the cost and profitability of the five orders in Exhibit 2. Compare these costs and profitability to those calculated by Midwest’s existing cost system.
3. Explain the differences in profitability of the five orders calculated by the ABC system and the company’s existing cost system.
4. Based on your analysis above, what actions should John Malone take to improve Midwest’s profitability? Why? What are the costs...
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