Wilkerson Case
What would an ABC system look like at Wilkerson? What are the revised product costs and margins under such a system?
Assumptions: We are assuming that the SG&A costs have no direct effect on the costing for each product line. SG&A was kept the same, whether using the original costing method or ABC costing.
Calculations for ABC Costing:
Machine Expense: $336,000/11,200 = $30 per machine hour
Setup Expense: $40,000/160 = $250 per setup
Engineering Expense: $100,000/1,250 = $80 per machine hour
Receiving and Production: $180,000/160 = $1,125 per unit
Packaging and Shipping: $150,000/300 = $500 per shipment
Example of ABC Costing for Valves:
Machine Expense = 3750 hours * $30 per machine hour = $112,500 Setup Expense: 10 batches * $250 per setup = $2500
Engineering Expense: $80 per engineering hour * 250 hours = $20,000
Receiving and Production: $1125 per unit * 10 production runs = $11,250
Packaging and Shipping: $500 per shipment * 10 shipments = $5000
Total MOH: $112,500 + $2500 + $20,000 + $11,250 + $5000 = $151,250
Gross Margin: Revenue - DL - DM – Total MOH = $298,750
Gross Margin Percentage: 46.32 %
**For the rest of our ABC Costing values, please see the income statement in Exhibit A.**
Exhibit B: Margin Calculations under Original Costing | Margin Calculation (Original Costing) | Valves | Pumps | Flow Cont. | Planned Selling Price | 86.15 | 107.69 | 95.38 | Actual Selling Price | 86 | 87 | 105 | Per-Unit Volume Based Costing | 56 | 70 | 62 | Planned Margin | 35.00% | 35.00% | 35.00% | Actual Margin | 34.88% | 19.54% | 40.95% | | | | | Exhibit C: Margin Calculations under ABC Costing | Margin Calculation (ABC Costing) | Valves | Pumps | Flow Cont. | Planned Selling Price | 86.15 | 107.69 | 95.38 | Actual Selling Price | 86 | 87 | 105 | Per-Unit Volume Based Costing | 46.17 | 58.2 | 115.38 | Planned Margin | 46.41% | 45.96% | -20.96% | Actual Margin | 46.32% | 33.10% | -9.88%
Assumptions: We are assuming that the SG&A costs have no direct effect on the costing for each product line. SG&A was kept the same, whether using the original costing method or ABC costing.
Calculations for ABC Costing:
Machine Expense: $336,000/11,200 = $30 per machine hour
Setup Expense: $40,000/160 = $250 per setup
Engineering Expense: $100,000/1,250 = $80 per machine hour
Receiving and Production: $180,000/160 = $1,125 per unit
Packaging and Shipping: $150,000/300 = $500 per shipment
Example of ABC Costing for Valves:
Machine Expense = 3750 hours * $30 per machine hour = $112,500 Setup Expense: 10 batches * $250 per setup = $2500
Engineering Expense: $80 per engineering hour * 250 hours = $20,000
Receiving and Production: $1125 per unit * 10 production runs = $11,250
Packaging and Shipping: $500 per shipment * 10 shipments = $5000
Total MOH: $112,500 + $2500 + $20,000 + $11,250 + $5000 = $151,250
Gross Margin: Revenue - DL - DM – Total MOH = $298,750
Gross Margin Percentage: 46.32 %
**For the rest of our ABC Costing values, please see the income statement in Exhibit A.**
Exhibit B: Margin Calculations under Original Costing | Margin Calculation (Original Costing) | Valves | Pumps | Flow Cont. | Planned Selling Price | 86.15 | 107.69 | 95.38 | Actual Selling Price | 86 | 87 | 105 | Per-Unit Volume Based Costing | 56 | 70 | 62 | Planned Margin | 35.00% | 35.00% | 35.00% | Actual Margin | 34.88% | 19.54% | 40.95% | | | | | Exhibit C: Margin Calculations under ABC Costing | Margin Calculation (ABC Costing) | Valves | Pumps | Flow Cont. | Planned Selling Price | 86.15 | 107.69 | 95.38 | Actual Selling Price | 86 | 87 | 105 | Per-Unit Volume Based Costing | 46.17 | 58.2 | 115.38 | Planned Margin | 46.41% | 45.96% | -20.96% | Actual Margin | 46.32% | 33.10% | -9.88%