Management Accounting-- Wilkerson Company Case - 2663 Words

The purpose of this report is discussing the case of Wilkerson Company that confronting tough competition in price cutting in pumps which caused to a big drop of pre-tax operating income from 10% to 3%. After observing the existing costing allocation, we found out there is an issue on the existing costing report that the manager could not be able to see the real situation. In light of this, there will be brought to the discussion on the feasibility of using an alternative costing method – Activity based costing (ABC) in the latter paragraphs. The issue of misallocation cost With the use of Traditional Absorption Costing (TAC) which means Wilkerson Company is now only put the costing of direct labor and material in place. As we can†¦show more content†¦In using the ABC system, Valves and Pumps are matching the company’s target of 35% of gross margin apart from Flow Controllers. With the use of TAC, the gross margin on pump sales is 19.5% that well below the companys target gross margin of 35%. This indicates that the current overhead cost allocation practice did not reflect the real costs incurred on the products. The lower actual gross profit obtained was mainly due to wrong cost allocation on the pump product. Table 4: Product Profitability Analysis TAC ABC Valves Pumps Flow Controllers Valves PumpsShow MoreRelatedManagement Accounting-- Wilkerson Company Case2677 Words   |  11 PagesThe purpose of this report is discussing the case of Wilkerson Company that confronting tough competition in price cutting in pumps which caused to a big drop of pre-tax operating income from 10% to 3%. After observing the existing costing allocation, we found out there is an issue on the existing costing report that the manager could not be able to see the real situation. In light of this, there will be brought to the discussion on the feasibility of using an alternative costing method – ActivityRead MoreVariable Cost1729 Words   |  7 PagesCost management | Wilkerson Company Case | | 1. What is the competitive situation faced by Wilkerson? The competitive situation faced by Wilkerson is quite severe. Price cutting in its main product has led to a huge drop in profit. While price increase in another product line partially made up the loss. We will discuss the detailed situation line by line. (1) Valves It was the first product line developed by Wilkerson and its high quality brought it a loyal customer base. EvenRead MoreCost and Flow Controllers1534 Words   |  7 PagesREV: AUGUST 5, 2003 ROBERT S. KAPLAN Wilkerson Company The decline in our profits has become intolerable. The severe price cutting in pumps has dropped our pre-tax margin to less than 3%, far below our historical 10% margins. Fortunately, our competitors are overlooking the opportunities for profit in flow controllers. Our recent 10% price increase in that line has been implemented without losing any business. Robert Parker, president of the Wilkerson Company, was discussing operating results inRead MoreWilkerson Company1397 Words   |  6 Pagescom/nikunjj_1/d/70869811-Solution-to-Wilkerson    Management Accounting for Multinational Companies Solution to the Wilkerson Case Igor Baranov   Executive Summary Taking into account the difference among product and high proportion of overheads, Wilkersonshould abandon its existing cost  system and move to activity-based costing. The profitability  analysisindicates that the company earns healthy margins on pumps and valves. However, the margin of  flow controllers at actual usage of capacity is  negative. Wilkerson shouldRead MoreCost and Flow Controllers1540 Words   |  7 PagesAUGUST 5, 2003 ROBERT S. KAPLAN Wilkerson Company The decline in our profits has become intolerable. The severe price cutting in pumps has dropped our pre-tax margin to less than 3%, far below our historical 10% margins. Fortunately, our competitors are overlooking the opportunities for profit in flow controllers. Our recent 10% price increase in that line has been implemented without losing any business. Robert Parker, president of the Wilkerson Company, was discussing operating results inRead MoreWilkerson Company Case Essay2136 Words   |  9 Pagesï » ¿1. If Wilkerson were to cut prices, based on contribution margin, to just cover short-term variable costs, what consequences could it experience? (5 marks) Several break-even-point assumptions are made in calculation: 1) Total fixed costs do not change with volume, and will exist regardless if the products are sold or not. 2) Sales mix will be constant. The contribution-margin percentage is 66.1%, which means 66.1 percent of each sales dollar is available for covering fixed costs and makingRead MoreCost Accounting Questions on Wilkerson Company Case Analysis1811 Words   |  8 PagesWilkerson Company 1. What is the competitive situation faced by Wilkerson? The critical product in term of market competition is the pumps of Wilkerson Company. The pumps are Wilkersons major product line with a production of about 12,500 units per month. Pumps currently have the lowest gross margin among all products, because competitors had been reducing prices on pumps and Wilkerson adopted its prices in order to remain competitive and to maintain the volume. 2. Given some apparent problems withRead MoreCost Accounting Questions on Wilkerson Company Case Analysis1796 Words   |  8 PagesWilkerson Company 1. What is the competitive situation faced by Wilkerson? The critical product in term of market competition is the pumps of Wilkerson Company. The pumps are Wilkersons major product line with a production of about 12,500 units per month. Pumps currently have the lowest gross margin among all products, because competitors had been reducing prices on pumps and Wilkerson adopted its prices in order to remain competitive and to maintain the volume. 2. Given some apparent problems withRead MoreManagerial Accounting2802 Words   |  12 Pages1. Basic Concepts Product cost = Direct Labor (DL) + Direct Materials (DM) + Manufacturing Overhead (MOH) Financial accounting Managerial Accounting + Sales + Sales - COGS - Variable Costs = Gross Profit = Contribution Margin - SGA - Fixed Costs = Net Profit = Net Profit COGS (Cost of Goods Sold) is an â€Å"inventoriable cost† ( recorded in the Balance Sheet as inventory and expensed (Income Statement) when goods are sold SGA (Selling, General Administrative) areRead MoreWilkerson Company Case Study4288 Words   |  18 Pagesdecision-support model rather than a transaction processing system. Cases Wilkerson Company is a simple activity-based costing case. It requires students to calculate the costs of three products using on a new set of cost drivers, to compare those costs with those calculated using traditional direct labor-based allocation bases, and then to understand what the numbers mean. (This is a new case with the Eleventh Edition.) Huron Automotive Company gives practice in computing and using costing rates and shows