Estimate product costs for valves, pumps, and flow controllers using the ABC method to combine data...

Question

Estimate product costs for valves, pumps, and flow controllers using the ABC method to combine data on overhead activities (primarily Exhibits 1 & 4) with direct cost data from the Exhibits. Note: The Cost Driver for Receiving and Production Control is production runs.
Compare your ABC costs to the standard unit costs (Exhibit 2). Be sure to determine the gross margin and gross margin percentage for each product. Explain what causes such different results. Hint: examine not only the methods, but also the characteristics of the individual products.
In your judgment, which method best illustrates the consumption of resources by each product? Why?
What are the strategic implications of your analysis? What product is problematic for Wilkerson? What actions would you recommend to the managers at Wilkerson Company as a result? Be specific.

wilkerson-company-bde1fxva.pdf

Sumit · Accepted Answer

1.
The cost under the Standard Costs is as under:
	Particulars
	Valves
	Pumps
	Flow Controllers
	Direct labour cost
	10
	12.5
	10
	Direct material cost
	16
	20
	22
	Manufacturing overhead (@300%)
	30
	37.5
	30
	Standard unit costs
	56
	70
	62
	 
	
	
	 
	Target selling price
	86.15
	107.69
	95.38
	Planned gross margin (%)
	35%
	35%
	35%
	 
	
	
	 
	Actual selling price
	86
	87
	105
	Actual gross margin (%)
	35%
	20%
	41%
The cost under the Activity based costing method is as under:
	Particulars
	Valves
	Pumps
	Flow Controller
	Direct Material
	16
	20
	22
	Direct labour cost
	10
	12.5
	10
	Overhead cost per unit based on ABC:
	
	
	 
	Machine Related Expense
	15.00
	15.00
	9.00
	Setup labour
	0.33
	1.00
	6.25
	Receiving and production control
	1.50
	4.50
	28.13
	Engineering
	2.67
	2.40
	12.50
	Packaging and shipping
	0.67
	2.80
	27.50
	Total cost per unit
	46.17
	58.20
	115.

Estimate product costs for valves, pumps, and flow controllers using the ABC method to combine data on overhead activities (primarily Exhibits 1 & 4) with direct cost data from the Exhibits. Note: The...

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