Wilkerson

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 %