Wilkerson Case: Assignment Questions
1. Out of the product line of vaults, flow controllers and pumps , Wilkerson is facing stiff price wars in the Pump segment. Its competitors having been continuously reducing the price which have to be matched by Wilkerson leading to reduction in the gross margin to about 20%. In the flow controllers segment, there have been no strong competitors and no change in the market share with increase in price. There has been no major player competing with the vault produced by Wilkersons. 2. The major problem with their existent approach is that the cost driver of production run- direct labor cost, used to assign the manufacturing overhead, varies with each product. The gross margin from this approach will not show the true value of gross margin. Also, some workers work on different machines simultaneously, which again affects the correct value of GM. The executive should not use the second method of treating manufacturing overheads as period expense. This method is not appropriate for not customized batch level production goods. 3. The method used by Wilkerson presently is job-costing system where overhead rate is used to allocate the applied manufacturing cost.
4. Based on the activity based costing model, the overheads are allocated on the basis of the activity it is associated with. Due to this, the overhead cost per unit of flow controllers increases as compared to the earlier costing used.
At the same time that increased cost reduces the overhead unit cost of the other products.
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