Case study for Wilkerson Company Essay

1. According to the case, if using ABC, Wilkerson should pool overheads into five dollar bill activities machine-related expenses, setup labor cost, receiving and production control cost, engineering cost, and packaging and rapture cost. The cost pool/cost driver information for an Activity ground greeting (ABC) system for Wilkerson has already provided by table2. Based on the information on table 1 and four exhibit in case, we can figure out that the total cost per unit of valves, pumps and carry dominances are $46.17, $58.20, and $115.38, respectively, by using the Activity Based Costing system. reckoning Process shows on table3. After computation, the glaring valuation reserve % for to each one product using ABC shows on table4. The actual gross margin % for valves, pumps and flow controllers are 46.30%, 33.10% and -9.90%, respectively.5. The difference in the gross margin for flow controllers when the Traditional Cost System is used and when the ABC Cost System is used is caused by the different allocation approach of overhead, step-up manufacturing overhead from $30.00 to $83.38 significantly. Flow controllers were low volume products, but they required to a greater extent resource. Due to the fact that flow controllers required non only to a greater extent components and more than labor, than pumps or valves, for each finished unit, but also more production runs and shipments, these operating process contributed substantial overhead costs. These overhead costs, however, were not be allocated in the traditional cost system. Compared to the traditional cost system, in which the overhead costs just were allocated to products as a percentage of production-run convey labor cost easily, the ABC cost system provides more right information about overhead costs.6. In order to maintaining Wilkerson Companys market share of valves and pumps, they have the room to snub valves and pumps price, although they may do not need to reduce their price. Meanw hile, they should increase the price of flow controllers to increase gross margin of these products. The reason that the company raised flow controller prices recently with no apparent effect on demand because the products were underpriced. They should guide with the negative profitability immediately. For the long run, probably the company needs to look into their manufacturing operation process. They may have ability to reduce their production runs by innovation. Moreover, they can increase shipping batch size by negotiating with customers to increase order size, which will reduce the number of shipments to saving costs. These approacheswill reduce their overhead costs, increasing their profitability.