1. Using your new cost system design, calculate new total per unit product costs for the valves, pumps and flow controllers?

2. Compare the costs that you calculate to the standard unit products costs in Exhibit 2. What causes different product costing methods to produce such different results?

100% Exhibiti Wilkerson Company: Operating Results (March 2000) Sales $2,152,500 Direct Labor Expense 271,250 Direct Materials Expense 458,000 Manufacturing overhead Machine-related expenses $336,000 Setup labor 40,000 Receiving and production control 180,000 Engineering 100,000 Packaging and shipping 150,000 Total Manufacturing Overhead 806,000 Gross Margin $617,250 General Selling & Admin. Expense 559.650 Operating Income (pre-tax) $ 57,600 29% 3% Exhibit 2 Product Profitability Analysis (March 2000) Direct labor cost Direct material cost Manufacturing overhead (@300%) Standard unit costs Target selling price Planned gross margin (%) Valves $10.00 16.00 30.00 $56.00 Pumps $12.50 20.00 37.50 $ 70.00 Flow Controllers $10.00 22.00 30.00 $ 62.00 $86.15 35% $107.69 35% $95.38 35% Actual selling price Actual gross margin (%) $86.00 34.9% $87.00 19.5% $105.00 41.0% Exhibit 3 Product Data Product Lines Materials per unit Valves 4.components 2 @ $2 = $ 4 2@ 6 = 12 Pumps 5 components 3 @ $2 - $ 6 2 @ 7 = 14 Flow Controllers 10 components 4 @ $1 = $ 4 5@ 2 = 10 1 @ 8 = 8 $22 .40 DL hours $10.00 Materials cost per unit Direct labor per unit Direct labor $/unit @ $25/DL hour (including employee benefits) Machine hours per unit $16 40 DL hours $10 $20 .50 DL hours $12.50 0.5 0.5 0.3 Exhibit 4 Monthly Production and Operating Statistics (March 2000) Production (units) Machine hours Production runs Number of shipments Hours of engineering work Valves 7,500 3,750 10 10 250 Pumps 12,500 6,250 50 70 375 Flow Controllers 4,000 1,200 100 220 625 Total 24,000 11,200 160 300 1,250