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Exhibit 2 Product Protability 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 (%) 34.90% 19.50% 41.00% Exhibit 3 Product Data Product Lines Valves Pumps Flow Controller 5 Materials per unit 4 5_ corn onen com on component LS its 2@$2= 3@$2 4@$1=$ $4 =$6 4 2 @ 6 = 2 @ 7 = 5 @ 2 = 12 14 10 1 @ 8 = 8 Materials cost per unit $16 $20 $22 Direct labor per unit .40 DL .50 DL .40 DL hours hours hours Direct labor $lunit @ $25/DL hour $10 $12.50 $10.00 (including employee benets) Machine hours per unit 0.5 0.5 0.3 Exhibit 4 Monthly Production and Operating Statistics (March 2000) Flow Valves Pumps Controller 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 Diagram and briey explain Wilkerson's existing cost system. What is the competitive situation faced by Wilkerson? Why may the management want to change the existing cost system? Use the information provided in the case to develop an activity-based cost model. a. Diagram the ABC system. In the diagram, clearly label the nature of the OH pools, the dollar amounts in each pool, the allocation basis, and the associated 0H rates (Show how you calculate the rates). b. Based on your ABC system, provide your best estimates about the cost and protability of Wilkerson's three product lines. Show the details of your calculation. c. How are the product costs and protability from your ABC system differ from reported product costs and protability? What causes these differences? Exhibit 1 Wilkerson Company: Operating Results (March 2000) Sales Direct Labor Expense Direct Materials Expense 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 Gross Margin General, Selling & Admin. Expense Operating Income (pre-tax) $2,152,500 271 ,250 458,000 806,000 $617,250 559,650 $57,600 100% 29% 3%