Essay on Wilkerson Company Case

Words: 2110
Pages: 9
Open Document
1. If Wilkerson were to cut prices, based on contribution margin, to just cover short-term variable costs, what consequences could it experience? (5 marks)
Several break-even-point assumptions are made in calculation:
1) Total fixed costs do not change with volume, and will exist regardless if the products are sold or not.
2) Sales mix will be constant.

The contribution-margin percentage is 66.1%, which means 66.1 percent of each sales dollar is available for covering fixed costs and making income: $1,365,650/66.1%=$2,065,387 sales are needed to break even.

Based on the existing sales mix and production units given (Valves 7,500, Pumps 12,500 and Flow Controllers 4,000), the break-even prices in dollars (BEP$) are shown as …show more content…
Meanwhile, flow controllers are the most profitable product, with a 41% actual gross margin, ranking the top among the three products of Wilkerson.

Exhibit #2. Product Profitability Analysis Based on ABC

After examining the production costs through ABC, we found that flow controllers are actually the least profitable product of the company. Specifically, under ABC accounting, flow controllers (which have the least production volume), consume the most receiving & production control, engineering, and packaging & shipping resources. This means the actual per unit production cost of flow controllers is $83.38, not $30, as previously thought (making flow controller unprofitable). On the contrary, pumps appear to be profitable under ABC.

Theoretically, the reason why the cost has shifted is due to the difference between ABC and traditional costing. Under a traditional costing system, a single allocation based can be used for all overheads. In this case, Wilkerson simply allocated the overhead costs to products according to 300% of production – run direct labor cost. Based on this, the manufacturing overhead per unit of pumps was $12.5 × 300% = $37.5, while that of the flow controllers was $10 × 300% = $30. However, under the ABC model, there are different cost drivers due to different relationships between overheads and production activities, and overhead costs are allocated based on resources
Show More

Related Documents: Essay on Wilkerson Company Case

Business: Total Variable Cost Essay

1. If Wilkerson were to cut prices, based on contribution margin, to just cover short-term variable costs, what consequences could it experience? (5 marks) If Wilkerson were to cut costs based on contribution margin, it is actually using variable costing method. Under Variable costing method, products costs such as variable manufacturing costs are capitalized. In contrast, period costs such as fixed costs are expensed. In this particular case, direct material and direct labour are variable costs…

Words 638 - Pages 3

Peanut Corporation Of America Essay

Peanut Corporation of America shipped their peanut butter products, regardless of being tested positive for salmonella. Company owner Stewart Parnell, his brother Michael Parnell, Georgia plant manager Samuel Lightsey and Georgia plant quality assurance manager Mary Wilkerson were involved in the peanut butter salmonella outbreak. The outbreak was linked to more than seven hundred cases of salmonella poisoning in forty-six states, nine of which died, due to the outbreak. Less than twenty-fours after…

Words 513 - Pages 3

Criminal Law and Conviction Paper Jean

It is just a matter of them being punished for their illegal activity. As an alternative of facing pressures such as financial penalties, company executives now find themselves facing imprisonment. Food Safety Enforcement through Criminal Prosecution Three former executives Stewart Parnell, former owner, and Michael Parnell, former food broker and Mary Wilkerson the former quality control manager from the Peanut Corporation of America (PCA), were found guilty for knowingly shipping contaminated products…

Words 447 - Pages 2

Monsanto's Argumentative Essay: Seed Saving

Monsanto, a corporation of endless greed that is eradicating humanity because of actions like this. A company of scientific deception that is destroying the environment by using chemicals in their food and bullying local farmers by not letting them seed save. If you pay any attention to the media, you have probably heard all of these…

Words 1269 - Pages 6

Quad Med Case

Most recently, QuadMed has grown to a profitable business due to acquisitions of their parent company, Quad/Graphic – a printing company. In order to provide better direction for growth, former president Dr. Raymond Zastro transitioned to role of Chief Medical Officer, while bringing on experienced leaders in health care industry, Tim Dickman and Blake Wilkerson, as President and Vice President respectively. (Hess, 2011) To move forward with business expansion, there are several key items QuadMed…

Words 544 - Pages 3

Case: Cost Driver and Abc Overhead Analysis Essay

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…

Words 341 - Pages 2

Technology: the Risky World of Unknown Potential Essay

resulting in modern slavery, and giving a new platform for pedophiles to use. When a new form of technology appears, it is usually to make our lives more convenient, and we view it as a luxury. More often than not, it becomes a necessity. Such is the case with the Internet; which has helped cause success in business, politics, education and much more. It is easily accessible, and always available; a super-encyclopedia to be used by anyone. The Internet has changed the way we as a society in modern times…

Words 1323 - Pages 6

Essay on Hunyango Sa Bato

employees were deliberately stalling the release of important company documents. His continued failure to win projects through bidding endangers his job and the stability of the company which he works for due to the incurred expenses and investments. He was desperate to capture a big project before his career hit rock bottom and company resources diminish. The choice of having a stable job, career and gaining more profit for the company versus asserting ethical values in a squalid and dirty business…

Words 1487 - Pages 6

The Features of Workplace in the Slaughterhouses Essays

Teacher Email Contact | | Course Name | DIPLOMA OF COMMERCE | Course Code | DOC3590 | Unit Name | MANAGEMENT | Unit Code | MMMT132 | Semester/Term/Year | Semester 2, 2011 | Time Allowed/Due Date | 12 SEPTEMBER 2011 | Assessment Type | Assignment 2 | Value of Assessment | 30% of overall assessment | Assessment Conditions | group assignment | Special Requirements | None | DECLARATION 1. I am aware that penalties exist for cheating, plagiarism (copying) and unauthorised…

Words 3643 - Pages 15

Alfonso Capone: American Gangster

From bootlegging to being the most wanted by the FBI, Alfonso Capone is one of the most well-known American gangsters. ¨Chicago didn’t seem to be to Capone’s liking; therefore, he changed Chicago to fit his needs”(Rose Keef xxiii). America’s most famous gangster, Al Capone followed the steps of Johnny Torrio by demanding respect through fear as he battled other mobs in Chicago. Al Capone was an Italian man who believed he was an American. “Al Capone always insisted he was an American, born and bred…

Words 1108 - Pages 5