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Question: Develop and diagram an activity-based costing system using information in the case. Calculate the profitability of Wilkerson's three product lines. Are these profitabilities different from the profitabilities Wilkerson reports based on its current costing system.

s 12s0 20 00 22.00 Exhibit 2 6.00 material cos Mah 200 82.00 556.00 95.3 10760 506 15 argt seling price 05 00 ctual selling price and products were packed and Suppliers and customers had shipped as completed Scot machines that held components in tures so that they could b were standard products and could be produced were produced by asembing tour diforent machinec could now match Plakon's Quaity in magins had been vaves, noe had tee maticaly. The valves Athough Soot tet several compeetons to gain market share by cuting prioe and gros product. the pumps were shipped to The manufacturing process tor pumps was ponents were machined and then asembled into the a so not give up its place as a major pump supplier Gross margns on pit had talen bew 20%, wel below tho crory's pared goss mrpn of 35%. mports of reduoed prices tor purrps. Wihersion had matched the month ow of chemicas Fow controlers were devices that controled the rate and diruction o They requred more components and more labor than pumps or vaes Aso there was much more vaniety in the types of ow controlers used in production runs and shipments were performed for this product line thn for each inished un t vaives w so many moe lkerson hamerty rated tw cooler proes by morethan 10%wen no acoaert onoct on d rund Wikerson had always used a simple cost accounting systern. Each unt of product w charged for direct material and iabor cost. Material cost was based on the ponents under annual purchasing agreements Labor rates, noluding tringe benelits, per hour, and were charged to products based on the standard run tmes prices paid for com were $25 for each product (see Wikarson Exhibit 3. The company had only one producing department, in which components wore both machined and assembled into finished products. The overhead costs in this depart ment were allocated to products as a percentage of production-run drect labor cost. Curmently his was an inexpensive way to alocate overhead costs to products Knight noted that some companies didn' allocate any overhead costs to products, treating hem as at the contribution margin level-price less all variable costs Wlkerson's variable costs were orly was measured ts direct material and drect labor costs. On that basis, all products, including pumps, wouild be generating substantial contribution to overhead and profts. She thought that perhaps some Wikerson's competitiors were following this procedure and pricing to cover variable costs Knight had recenby led a small task force to study Wilkerson's overhead costs since they had now become much larger than the direct labor expenses. The study had revealed the nformation . Workers ofhten operated several of the machines simultaneously once they were set up other operations, however, workers could operate only one machine. Thus machine-re followng Far s 12s0 20 00 22.00 Exhibit 2 6.00 material cos Mah 200 82.00 556.00 95.3 10760 506 15 argt seling price 05 00 ctual selling price and products were packed and Suppliers and customers had shipped as completed Scot machines that held components in tures so that they could b were standard products and could be produced were produced by asembing tour diforent machinec could now match Plakon's Quaity in magins had been vaves, noe had tee maticaly. The valves Athough Soot tet several compeetons to gain market share by cuting prioe and gros product. the pumps were shipped to The manufacturing process tor pumps was ponents were machined and then asembled into the a so not give up its place as a major pump supplier Gross margns on pit had talen bew 20%, wel below tho crory's pared goss mrpn of 35%. mports of reduoed prices tor purrps. Wihersion had matched the month ow of chemicas Fow controlers were devices that controled the rate and diruction o They requred more components and more labor than pumps or vaes Aso there was much more vaniety in the types of ow controlers used in production runs and shipments were performed for this product line thn for each inished un t vaives w so many moe lkerson hamerty rated tw cooler proes by morethan 10%wen no acoaert onoct on d rund Wikerson had always used a simple cost accounting systern. Each unt of product w charged for direct material and iabor cost. Material cost was based on the ponents under annual purchasing agreements Labor rates, noluding tringe benelits, per hour, and were charged to products based on the standard run tmes prices paid for com were $25 for each product (see Wikarson Exhibit 3. The company had only one producing department, in which components wore both machined and assembled into finished products. The overhead costs in this depart ment were allocated to products as a percentage of production-run drect labor cost. Curmently his was an inexpensive way to alocate overhead costs to products Knight noted that some companies didn' allocate any overhead costs to products, treating hem as at the contribution margin level-price less all variable costs Wlkerson's variable costs were orly was measured ts direct material and drect labor costs. On that basis, all products, including pumps, wouild be generating substantial contribution to overhead and profts. She thought that perhaps some Wikerson's competitiors were following this procedure and pricing to cover variable costs Knight had recenby led a small task force to study Wilkerson's overhead costs since they had now become much larger than the direct labor expenses. The study had revealed the nformation . Workers ofhten operated several of the machines simultaneously once they were set up other operations, however, workers could operate only one machine. Thus machine-re followng Far