Case: Cost Driver and Abc Overhead Analysis Essay

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Wilkerson Company Case Study

1. Product Profitability Analysis (current system)

Valve ($)
Pumps ($)
Flow Controller ($)
Direct labors
10.00
12.50
10.00
Direct materials
16.00
20.00
22.00
Overheads
(=300% × Direct labor)
30.00
37.50
30.00
Total Cost
56.00
70.00
62.00
Price
86.00
87.00
105.00
Margin (%)
30.00
(34.9%)
17.00
(19.5)
43.00
(41.0%)

2. ABC Cost Drivers

Activity
Cost ($)
Cost Driver
Machine components
336,000
Machine hours
Set up machines
40,000
No. of production runs
Receive and schedule components
180,000
No. of production runs
Provide engineering support
100,000
Engineering hours
Pack and ship components
150,000
No. of shipments

3. ABC Cost Driver Rates

Activity
Cost ($)
Cost Driver
Activity
Cost Driver Rate
Machine components
336,000
Machine hours
11,200
$30/m/c hr
Set up machines
40,000
No. of production runs
160
$250/run
Receive and schedule components
180,000
No. of production runs
160
$1,125/run
Provide engineering support
100,000
Engineering hours
1,250
$80/eng. hr
Pack and ship components
150,000
No. of shipments
300
$500/shipment

4. ABC Overhead Analysis: Summary

Valves
Pumps
Flow Controllers
ABC Overhead/unit:

Machine-related
15.00
15.00
9.00
Set-up
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
20.17
25.70
83.38

Under current system
30.00
37.50
30.00

5. ABC Overhead Analysis: Detailed Workings: Valves

1
Cost Driver Rate
2
Activity for Valves
3= 1 × 2
Allocation to Valves in Total ($)
4= 3/7500
Per unit Cost ($)
ABC Overhead

Machine-related
$30/m/c hr
3,750
112,500
15.00
Set-up
$250/run
10
2,500
0.33
Receiving and production control
$1,125
10
11,250
1.50
Engineering
$80/eng. hr
250
20,000
2.67
Packaging and shipping
$500/shipment
10
5,000
0.67
Total

20.17

6. ABC Overhead Analysis:
Detailed Workings: Pumps

1
Cost Driver Rate
2
Activity for Pumps
3= 1 × 2
Allocation to Pumps in Total ($)
4= 3/12,500
Per unit Cost ($)
ABC Overhead

Machine-related
$30/m/c hr
6,250
187,500
15.00
Set-up
$250/run
50
12,500
1.00
Receiving and production control
$1,125/run
50
56,250
4.50
Engineering
$80/eng. hr
375
30,000
2.40
Packaging and shipping
Show More

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