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    Wilkerson - Case Study1 PDF

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    Pavan
    The document discusses differences in costs estimates between traditional costing and activity based costing for three products - valves, pumps, and flow controllers - produced by Wilkerson & Co. Traditional costing uses a single cost driver, while activity based costing considers multiple cost drivers for each product. ABC estimates are limited as it assumes costs are similar for all customized flow controllers and does not consider general/administrative expenses in unit costs. ABC allocates costs like machine hours, setup labor, engineering hours etc. across products differently than traditional costing, resulting in different unit cost estimates for each product.

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    Wilkerson - Case Study1 PDF

    Uploaded by

    Pavan
    217 views2 pages
    The document discusses differences in costs estimates between traditional costing and activity based costing for three products - valves, pumps, and flow controllers - produced by Wilkerson & Co. Traditional costing uses a single cost driver, while activity based costing considers multiple cost drivers for each product. ABC estimates are limited as it assumes costs are similar for all customized flow controllers and does not consider general/administrative expenses in unit costs. ABC allocates costs like machine hours, setup labor, engineering hours etc. across products differently than traditional costing, resulting in different unit cost estimates for each product.

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    Wilkerson - Case study1.pdf

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    The document discusses differences in costs estimates between traditional costing and activity based costing for three products - valves, pumps, and flow controllers - produced by Wilkerson & Co. Traditional costing uses a single cost driver, while activity based costing considers multiple cost drivers for each product. ABC estimates are limited as it assumes costs are similar for all customized flow controllers and does not consider general/administrative expenses in unit costs. ABC allocates costs like machine hours, setup labor, engineering hours etc. across products differently than traditional costing, resulting in different unit cost estimates for each product.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    217 views2 pages

    Wilkerson - Case Study1 PDF

    Uploaded by

    Pavan
    The document discusses differences in costs estimates between traditional costing and activity based costing for three products - valves, pumps, and flow controllers - produced by Wilkerson & Co. Traditional costing uses a single cost driver, while activity based costing considers multiple cost drivers for each product. ABC estimates are limited as it assumes costs are similar for all customized flow controllers and does not consider general/administrative expenses in unit costs. ABC allocates costs like machine hours, setup labor, engineering hours etc. across products differently than traditional costing, resulting in different unit cost estimates for each product.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    of 2

    Wilkerson & Co case

    V Pavan Kumar Reddy Section B 2020PGP466

    a. On what counts the three products of Wilkerson are different?

    Although the process is same for all the 3 products, i.e, pumps, valves and Flow controllers, the
    margin for all the products was different. Wilkerson was the market leader in pumps. Due to the
    reduction in price of pumps due to competition, the gross margin was reduced to 19% from 35%.
    There was so much variety in types of flow controllers and they are customized. There was very less
    impact of competition on flow controllers and the gross margin went up to 40% from 35%. All the 3
    products are also different in terms of labour and material costs, machine hours required, and the
    manufacturing overhead costs

    c. Why are cost estimates different?

    Activity based costing considers multiple cost drivers for each product whereas traditional costing
    considers only a single cost driver

    d. What limitations does the ABC estimates have?


    • Although, the flow controllers are customized, these costs are estimated by considering the cost
    of all the flow controllers are similar

    • General and Admin. Expenses are not considered while deciding the unit costs of the products
    Activity based costing
    Manufacturing Activities (Exhibit: 1) Cost drivers (Exhibit: 4)
    Machine related expenses $ 3,36,000 Machine hours 11200
    Setup labor $ 40,000 Production runs 160
    Receiving and production control $ 1,80,000 Production runs 160
    Engineering $ 1,00,000 Hours of engineering 1250
    Packaging & shipping $ 1,50,000 Number of shipments 300

    Cost driver rate


    Machine related expenses $ 30 /machine hour
    Setup labor $ 250 /run
    Receiving and production control $ 1,125 /run
    Engineering $ 80 /hour
    Packeging & shipping $ 500 /shipment

    (Exhibit: 3 Valves Pumps Flow controllers


    & 4) Production (units) 7500 12500 4000
    Machine hours 3750 6250 1200
    Production runs 10 50 100
    Number of shipments 10 70 220
    Hours of engineering 250 375 625
    Mahine hours per unit 0.5 0.5 0.3

    Valves Pumps Flow controllers


    Direct Direct labor $ 10.00 $ 12.50 $ 10.00
    Costs Direct materials $ 16.00 $ 20.00 $ 22.00
    Machine related expenses $ 15.00 $ 15.00 $ 9.00
    Total Setup labor $ 0.33 $ 1.00 $ 6.25
    Overhead Receiving and production control $ 1.50 $ 4.50 $ 28.13
    costs Engineering $ 2.67 $ 2.40 $ 12.50
    Packaging & shipping $ 0.67 $ 2.80 $ 27.50
    Total cost $ 46.17 $ 58.20 $ 115.38

    Valves Pumps Flow controllers


    Standard Traditional costing $ 56.00 $ 70.00 $ 62.00 (Exhibit:2)
    Unit Costs Activity based costing $ 46.17 $ 58.20 $ 115.38

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