Wilkerson Case Study1
The analysis below is related to Wilkerson Company, which is a manufacturer of a few products supplied to manufacturers of water purification equipment. The three products they manufacture are:
1. Valves- high quality and highest tolerances in the industry; this product is what the company started from.
2. High-volume pumps- quickly became a major supplier of pumps; they manufacture and spend more machine hours on producing this product
3. Flow controllers- most unique and highest selling product.
Wilkerson Company would like to be making 35% gross margin on all three products, but the competitors have continually lowered the prices of their pumps. This forced Robert Parker (President of Wilkerson Company) to also lower the company’s price of pumps to maintain volume and status as a major supplier. Unfortunately, this has brought the gross margin for pumps DOWN (below 20%). Wilkerson Company’s competitive situation is to continue competing in the manufacturing of pumps while meeting planned gross margins of 35%.
Wilkerson needs accurate product costing to achieve gross margin goals as well as support both the internal and external shareholders that depend on this information. Wilkerson has defined goals for gross margins and in order to hit these, they need to understand their production cost and correct assignment of overhead. This will allow them to determine which products are high margin and should be emphasized in the market. It also allows them to address competitor price moves with confidence. For example, Wilkerson may determine lowering prices and entering a price war is not-advisable if they have a strong customer base and if eroding the margins will threaten the overall business. Likewise, Wilkerson needs accurate cost information to identify opportunities to margins as they did with flow controllers without losing business. Accurate cost knowledge can also help determine indirect resource use and identify areas for investment and improvement.
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1. Valves- high quality and highest tolerances in the industry; this product is what the company started from.
2. High-volume pumps- quickly became a major supplier of pumps; they manufacture and spend more machine hours on producing this product
3. Flow controllers- most unique and highest selling product.
Wilkerson Company would like to be making 35% gross margin on all three products, but the competitors have continually lowered the prices of their pumps. This forced Robert Parker (President of Wilkerson Company) to also lower the company’s price of pumps to maintain volume and status as a major supplier. Unfortunately, this has brought the gross margin for pumps DOWN (below 20%). Wilkerson Company’s competitive situation is to continue competing in the manufacturing of pumps while meeting planned gross margins of 35%.
Wilkerson needs accurate product costing to achieve gross margin goals as well as support both the internal and external shareholders that depend on this information. Wilkerson has defined goals for gross margins and in order to hit these, they need to understand their production cost and correct assignment of overhead. This will allow them to determine which products are high margin and should be emphasized in the market. It also allows them to address competitor price moves with confidence. For example, Wilkerson may determine lowering prices and entering a price war is not-advisable if they have a strong customer base and if eroding the margins will threaten the overall business. Likewise, Wilkerson needs accurate cost information to identify opportunities to margins as they did with flow controllers without losing business. Accurate cost knowledge can also help determine indirect resource use and identify areas for investment and improvement.
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