Case Study Wilkerson Company

Assessment 2 – Individual
By – Andrew Chan

WILKERSON COMPANY

Overview

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.

Cost Drivers
| |Valves
of Shipments |10 |70 |220 | |
|Hrs Engineering |250 |375 |625 | |
| | | | | |
|Direct Labor Expenses |75,000 |156,250 |40,000 |$271,250 |
|Direct Material Expenses |120,000 |250,000 |88,000 |$458,000 |

Action

Whilst a simple cost accounting system gives us the overall picture of the company, it doesn’t truly reflect an accurate picture of the performance of each product. In order to get a clearer picture of the situation, we need to examine the true relation of costs on each product based on their
| |1125x10 |1125x50 |1125x100 | |
|Receiving |11,250 |56,250 |112,500 |$180,000 |
| |80x250 |80x375 |80x625 | |
|Engineering |20,000 |30,000 |50,000 |$100,000 |
| |500x10 |500x70 |500x220 | |
|Shipping |5,000 |35,000 |110,000 |$150,000 |
| |250x10 |250x50 |250x100 | |
|Set Up |2,500 |12,500 |25,000 |$40,000 |
| |$151,250/ |$321,250/ |$333,500/ |$806,000