Wilkerson Company Case

Wilkerson Company Case Author’s Name Institutional Affiliation Wilkerson Company Case 1. Products costs for valves, pumps and flow controllers are calculated using the activity-based costing (ABC). Total product variables costs of valves are $195,000, pumps are $406,250 and flow controllers are $128,000 (See Exhibit A). Total products fixed costs of valves are $151,250, pump is $321,250 and flow controllers are 333,500 (See Exhibit A). The ABC cost per units for valves is $46.17, pumps are $58.20 and flow controller is 115.38 (See Exhibit A). 2. Comparison of ABC costs with the standard units cost reflects that there is a difference between the gross profit and gross profit margin. Gross profit margin by using the standards units’ costs reflect a margin of 34.90% for valves, 19.50% for pumps and 41.00% for flow controllers. Product of flow controller was successful in performance above the forecasted gross margin of 35%, the other two products have performed below the forecasted margin of 35% according to standard costs calculations. Gross profit margin calculated by using ABC costs give the values of 46.31% for valves, 33.10% for pumps and -9.89% for flow controllers (See Exhibit A). Reason for difference in margins is that standard costs are based on variable costs of direct material and direct labor, and on the other side, ABC costs also incorporate the manufacturing overheads. It is important to mention that ABC is using more activity centers as compared to the department numbers in traditional cost allocation system (Durana, 2019). The flow controller is using more overheads for production purposes, especially the number of shipments and engineering hours. This indicates that lot of technical expertise is required for completing the work and it also increases the number of labor hours for the company. Expenses such as salaries of engineers also create a negative impact on the net profit margins of company in short term and long term period of time. Most profitable product is valves and it is consuming the least engineering work hours of 250 as compared to 625 hours required for flow controllers. Usually more technical and innovative products generate more revenues but for Wilkerson company, flow controllers are the least profitable product. 3. ABC costing method has effectively helped in understanding the consumption of resources by every product and method also identified the most profitable business product in the company. According to ABC analysis, the most profitable product is valves with gross profit margin of 46.31%, then pumps with 33.10% and flow controllers are performing far below the expectations with margin of -9.89%. The product of flow controller is consuming the most overheads, such as; overhead cost per unit is $83.38 as per ABC analysis (See Exhibit A). Management uses ABC analysis for identifying th...