Wilkerson Company

Ankit Kumar Verma (2019PGP058) Sec A

Given Data:

Operating Results
Sales $ 21,52,500 100%
Direct labour expense $ 2,71,250
Direct materials expense $ 4,58,000
Manufacturing overhead
Machine related expenses $ 3,36,000
setup labor $ 40,000
Receiving and production control $ 1,80,000
engineering $ 1,00,000
Packaging and shipping $ 1,50,000
Total manufacturing overhead $ 8,06,000
Gross Margin $ 6,17,250 29%
General, Selling and Admin expenses $ 5,59,650
operating income $ 57,600 3%

Product Profitability Analysis

Valves Pumps Flow Controller
Direct Labor Cost $ 10.00 $ 12.50 $ 10.00
Direct material cost $ 16.00 $ 20.00 $ 22.00
Manufacturing overhead $ 30.00 $ 37.50 $ 30.00
standard unit cost $ 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%

Product Data
Product Line Valves pumps Flow controllers
Material per unit 4 5 10
Materials cost per unit $ 16.00 $ 20.00 $ 22.00
direct labor per unit 0.4 0.5 0.4
direct labor $/unit @ 25/DL hour $ 10.00 $ 12.50 $ 10.00
Machine hours per unit 0.5 0.5 0.3

Monthly Production & operating Statistics

Valves Pumps Flow controller Total
Production 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
Calculation:

AB Analysis

Manufacturing overhead & Actual Price Calculation

Valves pumps Flow controllers
Machine related expense /unit ((Total Machine Related Expenses/
Total Machine Hours) *(Machine Hours/Production)) $ 15 $ 15 $9
Setup labour /unit ((Total Setup Labour/ Total Production Run)
*(Production Run/Production)) $ 0.33 $1 $ 6.25
Receiving and production control /unit ((Total Receiving and
production Control Cost/ Total Production Run) *(Production
Run/Production)) $ 1.50 $ 4.50 $ 28.13
Engineering cost /unit ((Total Engineering Cost/ Total Engineering
Hours) *(Engineering Hours/Production)) $ 2.67 $ 2.40 $ 12.50
Packaging and shipping ((Total Packing & Shipping Cost/ Total No.
of shipments) *(No. of shipments/Production)) $ 0.67 $ 2.80 $ 27.50

Manufacturing overhead (sum of above 5 values) $ 20 $ 26 $ 83

Direct labor (given) $ 10.00 $ 12.50 $ 10.00
Direct material cost (given) $ 16.00 $ 20.00 $ 22.00

Actual Production Cost (Sum of overhead and direct cost) $ 46 $ 58 $ 115

Target selling price @35% margin $ 71.03 $ 89.54 $ 177.50

Loss due to Simple Cost accounting system

Valves Pumps Flow controllers
Target selling price @35% margin/unit (calculated) $ 71.03 $ 89.54 $ 177.50
Actual selling price/unit (given) $ 86.00 $ 87.00 $ 105.00
Profit/Loss per unit $ 14.97 $ -2.54 $ -72.50
Production Volume (given) 7,500 12,500 4,000
Total Profit/Loss per product line $ 1,12,308 $ -31,731 $ -2,90,000
Total Loss due to Simple Cost accounting system $ -2,09,423
% of Total Revenue -9.7%

Since they are facing a loss of $ -2,09,423 due to the simple cost accounting system, hence they should employ the
AB cost accounting system and price the products according to that.