Wilkerson Abc Cost Analysis

Wilkerson Abc Cost Analysis

  • Submitted By: parampnk
  • Date Submitted: 11/18/2013 6:33 PM
  • Category: Business
  • Words: 1502
  • Page: 7
  • Views: 2

Wilkerson Company
Operations Department
Action Plan for Improvement of Operations
It is our duty to acknowledge the contribution made by the costing department in helping us understand our business from a different and more accurate perspective. Having examined the outcomes of the ‘Activity-Based-Costing’ in detail, we that find these have serious implications for our operations and financial performance at Wilkerson. Discussions among us focused on generating alternative approaches, considering the merits and demerits of each and developing a plan of action. In the following passages we provide an overview of the existing situation, various alternatives considered by us, and then describe the actions we believe would help improve our financial performance.
SECTION 1: ACTION PLAN
Overview of Operations
Our Business
* Wilkerson manufactures equipment used in water purification systems
* Began with a unique design and superior engineering to produce ‘best-in-industry’ valves
* Introduced pumps and flow controllers as two additional product lines
Production Process
* Purchase semi-finished components and some finished parts from dedicates suppliers
* Machine components to close tolerance
* Assemble products
* Pack and ship to customers
* All steps operate on ‘Just-In-Time’ paradigm
The Problem
* Overall pre-tax profit has fallen from a historical rate of 10% to 2.68%
Cost Analysis
* ABC Analysis evidences a sea change from margins calculated using single cost method as follows
Particulars | Products |
| Valves | Pumps | Flow Controllers |
Selling Price | 86.00 | 87.00 | 105.00 |
Volume-based costing | | | |
- Unit cost | 56.00 | 70.00 | 62.00 |
- Gross margin | 34.88% | 19.54% | 40.95% |
Activity-based costing | | | |
- Unit cost | 46.17 | 58.20 | 115.38 |
- Gross margin | 46.32% | 33.10% | -9.88% |
Change in Gross Margin Percent | +11.44 | +13.56 | -50.83 |
Critical Issues...

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