Exhibit 1 Wilkerson Company: Operating Results (March 2000)

Sales

$2,152,500

100%

Direct Labor Expense

$271,250

Direct Materials Expense

498,000

Manufacturing Overhead

Machine-related expenses

$313,600

Setup labor

32,000

Receiving and production control

192,900

Engineering

100,000

Packaging and shipping

150,000

Total Manufacturing Overhead

788,500

Total cost of goods sold

1,557,750

Gross Margin

$594,750

28%

General, Selling & Admin. Expense

559,650

Operating Income (pre-tax)

$35,100

2%

Exhibit 2. Product Profitability Analysis (March 2000)
	Valves	Pumps	Flow Controllers
Direct labor cost	$10.00	$12.50	$10.00
Direct material cost	18.00	22.00	22.00
Manufacturing overhead (@300%)	30.00	37.50	30.00
Standard unit costs	$58.00	$72.00	$62.00
Target selling price	$86.15	$107.69	$95.38
Planned gross margin (%)	35.0%	35.0%	35.0%
Actual selling price	$86.00	$87.00	$105.00
Actual gross margin (%)	32.6%	17.2%	41.0%

Exhibit 3 Product Data
	Valves	Pumps	Flow Controllers
Materials per unit
# of components	4	5	10
	3 @ $2 = $6	4 @ $2 = $8	4 @ $1 = $4
	2 @ $6 = $12	2 @ $7 = $14	5 @ $2 = $10
			1 @ $8 = $8
Materials cost per unit	$18.00	$22.00	$22.00
Direct labor per unit (in DL hrs)	0.4	0.5	0.4
Direct labor $/unit @ $25/DL hr	$10.00	$12.50	$10.00
including employee benefits)
Machine hours per unit	0.50	0.50	0.30

Exhibit 4 Monthly Production and Operating Statistics (March 2000)
	Valves	Pumps	Flow Controllers	Total
Production (units)	7,500	12,500	4,000	24,000
Machine hours	3,750	6,250	1,200	11,200
Production runs	10	50	100	160
Number of shipments	10	70	220	300
Hours of engineering work	250	375	625	1,250

What is the competitive situation faced by Wilkerson?

Given some apparent problems with Wilkersons cost system, should executives abandon overhead assignment to products entirely by adopting a contribution margin approach in which manufacturing overhead is treated as a period expense? Why or why not?

Prepare the following calculations. Create a table using Excel to show your answers with details support your answer. Be sure to use $ signs where appropriate. Copy and paste as picture into Word document.

Calculate the unit product cost for each product using the direct-labor-based cost allocation system.

Calculate the unit product cost for each product using activity based costing to allocate the cost of manufacturing overhead, as well as profitability for each product line. Overhead cost pools include machine, setup, receiving/scheduling, engineering support and packing/shipping products.

Compare your work in question 3a. and 3b. above. Why have cost shifts occurred?