...98 AS 6 (revised 1994)
Accounting Standard (AS) 6
AS 6 (issued 1982)
Accounting Standard (AS) 6*
[This Accounting Standard includes paragraphs set in bold italic type and
plain type, which have equal authority. Paragraphs in bold italic type indicate
the main principles. This Accounting Standard should be read in the context
of the Preface to the Statements of Accounting Standards 1 and the
‘Applicability of Accounting Standards to Various Entities’ (See Appendix 1
to this Compendium).]
1. This Standard deals with depreciation accounting and applies to all
depreciable assets, except the following items to which special considerations
(i) forests, plantations and similar regenerative natural resources;
(ii) wasting assets including expenditure on the exploration for and
extraction of minerals, oils, natural gas and similar nonregenerative resources;
(iii) expenditure on research and development;
(iv) goodwill and other intangible assets;
(v) live stock.
This standard also does not apply to land unless it has a limited useful life
for the enterprise.
2. Different accounting policies for depreciation are adopted by different
enterprises. Disclosure of accounting policies for...
...Assessment 2 – Individual
By – Andrew Chan
Wilkerson Company is facing a decline in profits and has attributed this to a severe price cutting exercise in their Pumps line of products, dropping the company’s pre-tax margin to less than 3%, far below the historically healthy 10% margins.
It appears that gross margins on pump sales in the latest month had fallen below 20%, well below the budgeted gross margin of 35%. Although a recent increase to Flow Controllers by 10% seems to have been overlooked by competitors and have not caused an apparent effect on demand.
Wilkerson had always practiced using a simple cost accounting system in their business.
| |Valves |Pumps |Flow Controllers |TOTAL |
|Production |7500 |12,500 |4,000 |24,000 |
|Direct Labor |10 |12.50 |10 | |
|Material Costs |16 |20 |22 | |
| | | | | |
|Machine Hours |3,750 |6,250...
...AIM 6202 – Wilkerson Company
Everything you need is in the case and in the requirements provided below. I will not provide any interim feedback on this case so please do not send me any preliminary analysis to check whether you are “on track.”
Address the issues/questions provided below in your case report. The format of the write up can be either in the form of detailed answers to each of the questions below or as a comprehensive, smooth-flowing case analysis. No page limits and you can include any number of exhibits. Please submit the case through the ELearning assignment drop box tool. One submission per group is enough.
I have observed in the past that the best reports are from those groups where all the group members work on the entire project and not those that divide up the work by assigning a few questions to each member and cobbling together a report.
Plagiarism of any form will be subject to penalties/sanctions described under the academic code of conduct section in the syllabus.
1.What is the competitive situation faced by Wilkerson?
2. Given some of the apparent problems with Wilkerson’s cost system, should executives abandon overhead assignment to products entirely by adopting a contribution margin approach in which manufacturing overhead is treated as a period expense? Why or why not?
3. How does Wilkerson’s existing cost system operate? Develop a diagram to show how...
Management Accounting for Multinational Companies
Solution to the Wilkerson Case
Taking into account the difference among product and high proportion of overheads, Wilkersonshould abandon its existing cost system and move to activity-based costing. The profitability analysisindicates that the company earns healthy margins on pumps and valves. However, the margin of flow controllers at actual usage of capacity is negative. Wilkerson should consider action targeted atcost reduction (changes in flow controllers design or in their production and delivery process) orraising the price of flow controllers for customers. Since flow controllers are customized, thecompany can set different prices for different customers (groups of customers) based on the actualamount of resources spent (e.g. implement activity-based pricing).
Wilkerson has to estimate the profitability of its products in order to make long-term product mixdecisions. These decisions should be based on estimation of product costs and might includedecisions to continue / stop production of a particular product, pricing decisions, and decisionsconcerning product and process design, including customer relations.
Information about direct labor and material costs as well as overhead costs is available. Overheadsare recorded by five...
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 its gross margin. Wilkerson believes that its’ competitors are using overhead expenses as period expenses while Wilkerson uses it as product expenses. A study had also been organized to calculate the overhead cost as they are larger than that of the direct labor expense. The raw materials are purchased as semi-finished products which are later assembled in a manufacturing facility.
PUMPS: Five components are assembled to produce a pump. The gross margin in its latest month had fallen below 20%. Recently the price of the pump was increased by 10% without affecting its sales volume.
VALVES: The valves are designed uniquely. They have loyal...
...Another factor that may be positively contributing to valve sales is the customer loyalty Wilkerson established due to its high-quality products.
While valves and pumps are commodity products, flow controllers are highly customized products that require more detailed manufacturing, whereas pumps and valves can be manufactured in an “assembly-line” style. As Exhibit 4 shows, flow controllers have substantially more production runs, shipments, and engineering work than valves and pumps, despite having the least production and machine hours per work. The large number of production runs and hours of engineering work are due to the unique nature of each product, requiring more detailed engineering and different components for each product. Since each flow controller is relatively unique, it is more difficult for Wilkerson to ship in bulk, which explains the fact that over 70% of Wilkerson’s total shipments are allocated to flow controllers. Despite all this, Wilkerson maintains a healthy 41% gross margin on flow controllers, even after raising prices by 10% of the target price. This is likely due to either a high-quality product relative to its competitors, or the standard unit cost of flow controllers being too low. ABC will allow the standard unit cost of flow controllers to be better assessed, and the reason for the high gross margin of flow controllers will become clear.
Overall, Wilkerson is in a precarious...
...Costing Responsibility Centres and Products
Case Study: Wilkerson Company
Lessons learned from this topic and case study:
1. Managers need to be able to estimate the costs of different responsibility centres and products to assist with monitoring the performance of different departments and also to assist with decision making about product pricing, profitability of individual products, assist with decisions when making changes to product lines and various other managerial requirements such as controlling costs and valuing inventory for financial statements.
2. Dividing the business into cost objects such as departments or products can assist with creating greater accuracy when allocating costs to each ‘cost object’.
3. The more we break down the business into activities and cost objects, the greater the accuracy of allocating costs to each object.
4. Costs can be allocated as direct or indirect costs related to each cost object. Indirect costs must be estimated for each cost object and it is important to assess how much of the costs allocated to each object are indirect as the greater the proportion of indirect costs allocated, the greater the margin for error in these estimations.
5. Managers need to be careful of overpricing or under-pricing goods due to allocation of costs to each product. As was shown with the Wilkerson case on further analysis of costs using the activity based costing method the company had been...
...BMGT321 – 0201
There are many different types of cost systems a company can choose from when calculating their costs. Two of the most frequently used cost accounting systems are a volume based cost system and an activity based cost (ABC) system. Each system has their own advantages and disadvantages and some are more common among certain industries. Wilkerson, like many other companies, used a simple/volume based cost accounting system. Under this system, Wilkerson was inappropriately allocating their costs by assigning the overhead expenses based on direct labor, thus calculating their total costs and operating income incorrectly. If Wilkerson continues to operate their company ignoring the fact that their costs are inaccurate, it is possible that they may make poor business and pricing decisions in the future. Although Wilkerson’s costs are currently being calculated incorrectly, if they decide to use an activity based costing system, they may achieve more accurate results.
Using a simple cost accounting system is often easier and less time consuming than an activity based costing system, but it is also less accurate. Wilkerson’s implementation of an ABC system would most likely be very beneficial to the company in terms of both determining their costs more precisely and making overall better pricing and business decisions. An ABC system at Wilkerson would look very...