Exhibit 1- Wilkerson Company: Operating Results (March 2000)
Sales		$ 2,152,500		100%
Direct Labor Expense		$ 271,250
Direct Material 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	$ 16.00	$ 20.00	$ 22.00
Manufacturing overhead (@300%)	$ 30.00	$ 37.50	$ 30.00
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 (%)	34.9%	19.5%	41.0%

Exhibit 3- Product Data
	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
Material cost per unit			$ 16			$ 20			$ 14
Direct labor per unit	0.4			DL hours		0.5	DL hours		0.4	DL hours
Direct labor $/unit @ $25/DL hour	$ 10.00			$ 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 Controller	Total
Production (units)	7500	12500	4000	24000
Machine hours	3750	6250	1200	11200
Production runs	10	50	100	160
Number of shipments	10	70	220	300
Hours of engineering work	250	375	625	1250

A) What is the competitive situation faced by Wilkerson?

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

C)How does Wilkersons existing cost system operate? Develop a diagram to show how costs flow from factory expense accounts to products.

D) Develop and diagram an activity-based cost model using the information provided in the case. Provide your best estimates about the cost and profitability of Wilkersons three product lines. What difference does your cost assignment have on reported product costs and profitability? What causes any shifts in cost and profitability?

E) What concerns, if any, do you have with the cost estimates you prepared in the answer to d? What other information or analysis would you want for better cost and profitability estimates?

F) Wilkerson has been compensating salespersons with commissions on their gross sales volumes (less returns). What are your thoughts regarding a change in the incentive structure?

G) Based on your analysis in d above, what actions might Wilkersons management consider to improve the companys profitability. *Important* All of your work leads up to your recommendations as required here in g. Offer multiple suggestions, support of those suggestions, and any concerns regarding the suggestions.