Case of Wilkerson Company

The WC executives have expressed their concerns regarding the current pricing and the profitability of the three products. One of the concerns was that the 35% targeted profit margin may not be attainable with the current costs of the three products which you report in (C) above. The Sales Department of WC did some market research and concluded that they can easily increase the current targeted selling price of the Flow Controllers product by 50% without losing their market share. This is because the adjusted targeted price of the Flow Controllers will still be below the competitors price. The WC executives have asked your team to initiate a business process re-engineering (BPR) program aiming at achieving a 25% (or more) profit margin for the three products. As part of the data collection you conduct for the BPR, you have been provided with that the following possible ranges of improvements that can take place in three activities, including the activities costs AND their related cost drivers:

Activity	Reduction in Activity cost	Reduction in Cost drivers
Engineering	25%	60% for the flow controllers only
Packaging and shipping	5%	25% for the flow controllers only
Receiving and production control	10%	50% for the flow controllers only

1. Estimate the cost per unit for each of the three products following the implementation of the BPR under the proposed costing system.
2. Estimate the profitably and the gross profit margin percentage for Flow Controllers using the new targeted price and the new cost per unit. Has the target gross margin of 25% been achieved? If not, can you propose alternative improvements which could help the WC management to achieve the target gross margin? (show your calculations).
3. Estimate the profitably and the gross margin percentage for Valves and Pumps following the implementation of the BPR under the proposed costing system. Has the target gross margin of 25% been achieved for each of both products? If not, can you propose alternative improvements which could help the WC management to achieve the target gross margin? (show your calculations).