Exhibit 1 Wilkerson Company: Operating Results (March 2000)
Sales			$2,152,500	100%
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	29%
General, Selling & Admin. Expense			559,650
Operating Income (pre-tax)			$57,600	3%

Exhibit 2 Product Profitability Analysis (March 2000)
	Valves	Pumps	Flow Controllers
Direct labor cost	$10.00	$12.50	$10.00
Direct material cost	16	20	22
Manufacturing overhead (@300%)	30	37.5	30
Standard unit costs	$56.00	$70.00	$62.00
Target selling price	$86.15	$107.69	$95.38
Planned gross margin (%)	35%	35%	35%
Actual selling price	$86.00	$87.00	$105.00
Actual gross margin (%)	34.90%	19.50%	41.00%

Exhibit 3 Product Data
Product Lines	Valves	Pumps	Flow Controllers
Materials per unit	4 components	5 components	10 components
	2 @ $2 = $ 4	3 @ $2 = $ 6	4 @ $1 = $ 4
	2 @ 6 = 12	2 @ 7 = 14	5 @ 2 = 10
			1 @ 8 = 8
Materials cost per unit	$16	$20	$22
Direct labor per unit	.40 DL hours	.50 DL hours	.40 DL hours
Direct labor $/unit @ $25/DL hour	$10	$12.50	$10.00
(including employee benefits)
Machine hours per unit	0.5	0.5	0.3

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

1. What is the competitive situation faced by Wilkerson?

2. Given some of the problems with Wilkersons current cost system, should executives abandon

overhead assignment to products (which means using more of a direct cost accounting

system) by adopting a contribution margin approach? Why or why not?

3. Using the manufacturing overhead costs provided in Exhibit 1 and the production and operating

statistics provided in Exhibit 4, calculate new overhead application rates using an activity-based

costing approach.

4. Calculate total costs by product line for March using the new overhead allocation rates

developed in number 3 above.

5. Recalculate the Product Profitability Analysis provided in Exhibit 2 using your data from above.

6. What actions should the Wilkerson executives take to increase profitability at their company?