Group10 - Wilkerson Company - Case Assignment

Management Accounting Report
On
Wilkerson’s Company
By GROUP 10 :-
Ananya Pandey (2310194)
Andukuri Vishnu Vardhan (2310195)
Komal Meena (2310219)
Kota Shubha Kiran (2310220)
Sampriti Kamana Mahanta (2310255)
Vadaliya Keyurkumar Ishwarbhai (2310271)
Wilkerson Company: Case Analysis
Question No 1: What is the competitive situation faced by Wilkerson company?
Wilkerson supplied products to water purification equipment manufacturers. They started

with a unique valve design that produced best tolerance in the industry and expanded to two
more product - pumps and flow controllers.
⚫ In case of valves, although the competitors are now able to match the quality of Parker’s,
none had tried to gain market share by cutting price, and gross margin is maintained at
35%.
⚫ In case of pumps, Competitors have become very price competitive and as it is a
commodity, Wilkerson had to match it, bringing the gross margin down to 20%.
⚫ In case of Flow controllers, competitive situation seems to be very relaxed as even after
the price of 10%, there was no reduction in the demand of the product.
Question No. 2: Develop and diagram an activity-based cost model using the information in
the case. Provide your best estimates about the cost and profitability of Wilkerson’s three
product lines. What difference does your cost assignment have on reported product costs and
profitability?
Recieving and Packaging and

Engineering Set-up Machined
Production run shipping
2. Activity Based Costing
Identify the Activities & Cost driver rates
Activities Activity Cost Cost Driver Total cost drivers Cost driver rate
Machine related expense $336,000 Machine hours 11,200 $30
Set-up cost 40,000 Production runs 160 250
Recieving and production
180,000 Production runs 160 1,125
control
Hours of engineering
Engineering 100,000 1,250 80
work
Packaging and shipping 150,000 Number of shipments 300 500
Allocation to products
Valves Pumps Flow Controllers
Overhead allocation as per ABC:
Production Sales Volume 7,500 12,500 4,000
Selling Price $86.00 $87.00 $105.00
Sales $645,000.00 $1,087,500.00 $420,000.00
Direct material cost $120,000 $250,000 $88,000
Direct labor cost $75,000 $156,250 $40,000
Machine related expense $112,500 $187,500 $36,000
Set-up cost $2,500.00 $12,500.00 $25,000.00
Recieving and production
$11,250.00 $56,250.00 $112,500.00
control
Engineering $20,000.00 $30,000.00 $50,000.00
Packaging and shipping $5,000.00 $35,000.00 $110,000.00
Total Expense $346,250 $727,500 $461,500
Income 298,750 360,000 -41,500
Return on Sales 46.32% 33.10% -9.88%
Difference between Activity based cost assignment and reported costs and profitability
Actual gross margin 35% 20% 41%
Gross Margin as per ABC 46% 33% -10%
Difference in Margin 11% 14% -51%
Standard unit cost $56.00 $70.00 $62.00
Standard unit cost as per ABC $46 $58 $115
Difference in Standard unit costs ($10) ($12) $53
Question No. 3: Based on Q. 2 analysis, why have the cost shifts occurred?
The cost shift has occurred because before the overhead costs in this department were
allocated to products as a percentage of production-run direct labor cost, which was 300%.
When we did the cost allocation based on Activity based allocation, we could see that each
product had different cost overheads percentage and had unaccounted and over accounted
overhead costs before. This made a big revelation as well that the product, flow controller
which they thought was the most profitable was giving them a loss.
Question No. 4: Based on ABC analysis, what actions might Wilkerson’s management team
consider improving the company’s profitability?
Wilkerson’s management team with respect to flow controllers has 2 options:-

1. Stop the production line, as the loss incurred by them is huge 10%.
2. Try and reduce the costs as much as possible and increase the price to get into the
profit margins.
Pumps are showing a good margin of 33% so they are going strong now, if competitors think
about reducing the price they can still comfortably do so, but they should try and see for
costs reductions and production optimization as well because they are below the intended
gross margin of 35%.
Valves are doing well so no need to do any change in terms of pricing but again costs
reductions and production optimization would increase the profit margin more.
Overall, they should work on especially cutting their machine related expense, which
contributes the most to the total expense and investigate other expense and processes as
well to ensure efficiency and cost cutting opportunities.

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Management Accounting Report

Question No 1: What is the competitive situation faced by Wilkerson company?

Wilkerson supplied products to water purification equipment manufacturers. They started

Recieving and Packaging and

2. Activity Based Costing

Identify the Activities & Cost driver rates

Wilkerson’s management team with respect to flow controllers has 2 options:-

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