Wilkerson

Topics: Cost, Price, Costs Pages: 21 (584 words) Published: December 3, 2013
Managerial
 Accounting
 
E3
 Group
 1
 

 
WILKERSON
 CASE
 

 

1.

How
 does
 Wilkerson’s
 existing
 cost
 system
 operate?
 
 
Simple
 cost
 accounting
 system
 (One-­‐cost
 pool)
 
 
Product
 costs:
 direct
 labor,
 direct
 materials,
 manufacturing
 overhead.
 The
 overhead
 costs
 were
 
allocated
 to
 products
 as
 a
 percentage
 of
 production-­‐run
 direct
 labor
 cost
 with
 a
 rate
 of
 300%.
 

 

2. Develop
 an
 activity-­‐based
 cost
 model
 using
 the
 information
 in
 the
 case.
 Provide
 best
 estimate
 
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?
 
 
Product
 Lines
Direct
 labor
 cost
Direct
 material
 cost
Manufacturing
 overhead
Machine-­‐related
 e xpenses
Setup
 l abor
Receiving
 &
 
 production
 control
Enginnering
Packaging
 &
 shipping
Total
 manufacturing
 overhead
Unit
 manufacturing
 overhead
Standard
 unit
 costs
Original
 cost
 accounting
 system

Valves

Pumps

Flow
 Controllers

$10
$16

$12.50
$20

$10
$22

$112,500
$2,500
$11,250
$20,000
$5,000
$151,250
$20.17
$46.17
$56.00

$187,500
$12,500
$56,250
$30,000
$35,000
$321,250
$25.70
$58.20
$70.00

$36,000
$25,000
$112,500
$50,000
$110,000
$333,500
$83.38
$115.38
$62.00

Target
 selling
 price
Planned
 gross
 margin
 %

$71.03
35%

$89.54
35%

$177.50
35%

Actual
 selling
 price
Actual
 gross
 margin
 %
Original
 cost
 accounting
 system

$86
46%
34.90%

$87
33%
19.50%

$105
-­‐10%
41.00%
 

The
 costs
 of
 flow
 controllers
 largely
 increase
 while
 its
 margin
 becomes
 negative.
 As
 expected
 for
 
customized
 products,
 flow
 controllers
 are
 more
 costly,
 requiring
 more
 production
 runs,
 shipments
 
and
 engineering
 labor
 than
 valves
 and
 pumps.
 

 
3.

Based
 on
 your
 analysis
 for
 Question
 2,
 recommend
 three
 distinct
 actions
 that
 Wilkerson’s
 
managers
 could
 implement
 to
 improve
 the
 company’s
 profitability.
 
1)

Unless
 the
 price
 can
 be
 increased,
 the
 company
 should
 stop
 producing
 Flow
 Controllers
 since
 
the
 margin
 is
 -­‐10%.
 Interestingly,
 there
 is
 little
 competition
 for
 this
 product
 and
 their
 last
 
price
 increase
 did
 not
 have
 apparent
 effect
 on
 demand.
 If
 possible,
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