This website uses cookies to ensure you have the best experience. Learn more

Case Study

1067 words - 5 pages

Hyeokchan Shin
Prof. Cheng
Wilkerson Company

Wilkerson Company mainly manufactures water purification equipment. The company’s profitability is resulting from the finished goods of pumps, valves, and flow controllers. However, the company has been experiencing the decline in profits. The overall pre-tax operating income has decreased from a historical rate of 10% to less than 3%.
Production process of Wilkerson Company can be simplified into three stages. The company first purchases the semi-finished components from suppliers. Then it machines these component parts and assembles them in the manufacturing facility. The production runs are scheduled to match ...view middle of the document...

The problem for this existing cost system that the company is inappropriately allocating overhead cost to products. Due to this poor allocation, the manufacturing cost of each product is not very accurate. The proportion of overhead cost is unrealistically high. The proportion of the overhead cost weighs 52.5%. (806,000/1,535,250) In addition, the manufacturing overhead is considered as cost and allocated in proportion to direct labor cost of 300%.
Treating the overhead costs as a period expense suggests that the product profitability will be measured without overhead costs, which means, there is a correlation between the variable costs to the product price. Following this approach makes the pricing to cover variable costs (direct materials and direct labors).
The Activity-Based Costing is the method of matching costs to activities. It will provide better strategic decisions compared to the current cost accounting system. The Activity-Based Costing method will define cost pools and cost drivers. So for Wilkerson Company, cost pools would be machine expenses, set up labor, production control, engineering, packaging, and shipping. The related cost drivers would be machine hours, production runs, number of shipments, and hours of engineering work. Based on these information, the ABC system will look like this:
Table 1. (ABC Rates)
Cost Pool | Amount ($) (a) | Cost Driver | Amount (b) | ABC Rate = (a)/(b) |
Machine Expenses | $336,000 | Machine hours | 11200 hrs | $30 per machine hr |
Setup Labor | $40,000 | Production runs | 160 runs | $250 per p. run |
R & P control | $180,000. | Production runs | 160 runs | $1125 per p. run |
Engineering | $100,000 | Number of shipments | 1250 hr | 80 per hr |
Packaging and Shipping | $150,000 | Hours of engineering work | 300 shipments | $500 per shippment |

This table shows how the Activtiy Based Cost rates are calculated. The amount from the cost pool divided by the cost driver gives the cost rate for ABC rate. After calculating the rate of Activity Based Cost, we now can calculate Activity Based Cost for each product.

Table 2. (ABC cost per product)

Product | Valves | Pumps | Flow controllers |
Units | 7500 | 12500 | 4000 |
Direct Labor | $75,000 | $156,250 | $40,000 |
Direct Material | $120,000 | $250,000 | $88,000 |
Total | $195,000 | $406,250 | $128,000 |
  |   |   |   |
Machine Expenses | $112,500 | $187,500 | $36,000 |
Setup Labor...

Other assignments on Case Study

Case Study

347 words - 2 pages Olaes, Chelsea Shane B. BA4FM-A Case Study 1, Creating the International Trade Organization Page 1 of 1 The US State Department presented a charter for the creation of International Trade Organization (ITO) together with the World Bank & International Monetary Fund which were created at the Bretton Woods Conference. Those institutions would compromise a comprehensive system for the management of international economic affairs. The

Case Study

540 words - 3 pages Case Study Chapter 1: The role of capital market intermediaries in the dot-com crash of 2000 1. What is the intended role of each of the institutions and intermediaries discussed in the case for the effective functioning of capital markets? i. Venture Capitalist: provides capital for the company in the early stage of development and ensures company to have a good management team and sustainable business. VC demand high return on

Case Study

662 words - 3 pages Case Study Analysis Shaun wade Comm 215 April 22, 2013 Linda Camp Case Study Analysis * ABC Inc. has hired 15 new employees with plan of starting to work July 1. Carl Robins is the new campus recruiter; he is trying to implement a training program. His plan is to start the training program June 15. Carl is to coordinate with Monica Carrolls the policy and procedures of new hires along with the employee manuals. Carl has discovered

Case Study - 2504 words

2504 words - 11 pages UNIVERSITY OF LUZON Perez blvd.Dagupan City Business Policy and Staregy Henry Sy and John Gokongwei ( case study 3) Leader : Sheila Cerezo Assistant: Cyrel Jing Abaga Members: Monica Cabatin Stephen John Ramirez Belita Garcia Diana Rose Manangan Ma. Geneva Mapanao Karen Lamsen MarylleUngos We are aware that Robinsons and SM are popular shopping centers in the Philippines. These two

Case Study - 1338 words

1338 words - 6 pages Case Study Amazon’s New Store: Utility Computing Name: Institution: Course: Tutor: Date: Case Study Amazon’s New Store: Utility Computing Introduction Back in the year 1995, Amazon was opened as a bookstore, one that has grown over the years and morphed into a large reputable internet based company. One of the largest virtual superstores today in the world, Amazon offers up to thirty six categories of products. Jewelry, furniture, clothing and

Case Study - 5077 words

5077 words - 21 pages -care provider, or non- intercepted, in which case injury was averted only by chance. In all, 334 errors were detected as the causes of 264 preventable and potential ADEs. These errors are categorized by type and medication process stage in Table A below. The study concluded that the most common error source was ‚the dissemination of drug knowledge, particularly to physicians.‛ Major error cause categories are given below in Table B. 6 Unlike

Case Study - 715 words

715 words - 3 pages Case Study (August 2008) Read the following case, analyze it and answer the questions given at the end: Rupbani Beverage Limited entered the Indian wine industry in 1975 by acquiring the Mastana Wine Company of Shimla and two other smaller wine companies at Kalka for Rs. 50 lakh. Despite hostility expressed by other wine makers and predictions that Rupbani would very soon fail as other outsiders such as Parminder Wine Company had, the entry

Case Study - 971 words

971 words - 4 pages CASE STUDY 01 Adrian Holdsworth was a 39-year-old Caucasian woman with two children (a son, age 12, and a daughter, age 7). Since obtaining her bachelor’s degree in business administration 8 years ago, Adrian has worked as a bank manager. Recently she had become increasingly worried about her ability to concentrate and remember things at work, and she went to her family doctor for an evaluation. Finding no physical basis for her concentration

Case Study - 1725 words

1725 words - 7 pages Case Study Analysis Overview Carl must coordinate the new hire orientation, which is not limited to but includes scheduling the mandatory drug screening, examining the company and organization policies, and completing necessary new hire paperwork. Carl is currently behind on getting the task required completed. A range of items are missing that will allow the task necessary to complete the requirements in a timely manner with each of the goals

Case Study - 1276 words

1276 words - 6 pages the above questions. Describe the role of the nervous system, adrenal glands, kidneys and pituitary as appropriate to the relation of each of the seven factors listed below: 1. Peripheral resistance 2. Heart rate 3. Venous return 4. Stroke volume 5. Cardiac output 6. End systolic and diastolic volumes 7. Blood viscosity Copyright ©  by the National Center for Case Study Teaching in Science. Originally published // at Please see our usage guidelines, which outline our policy concerning permissible reproduction of this work. “The Hot Tub Mystery” by Herbert House Page 4

Case Study - 1276 words

1276 words - 6 pages Clorissa A Case Study on Behavior Clorissa is a student in my seventh period class. Clorissa is a very productive young lady that always makes good grades. She has the highest average in her seventh grade class. Clorissa is very involved in extracurricular activities. She is very passionate about her studies and helping others. Clorissa has been changing over the course of a few weeks. I believe I notice a change but I wasn’t really

Similar Documents

Case Study 1253 Words

1253 words - 6 pages Introduction: Aim The aim of this article is to examine the role of the Law of Tort in business activities assessing particular forms of tortuous liability and apply the elements of the Tort of Negligence. Scope It includes the nature of general tortuous liability,the nature of employer’s liability,the application of the elements of the Tort of Negligence and vicarious liability. Background to study Case study No. 1 Facts: A bus

Case Study 1584 Words

1584 words - 7 pages Case Study Week 2 COMM/215 August 16, 2010 ABC Inc. hires Carl Robins as the new campus recruiter. Within six months, he completed his first hiring process on the job. In preparation for the orientation, he notices numerous mistakes and shortfalls during his final review of the new hires application files. This type of errors is normally seen in a new hire or a first time worker. Extremely concerned and the possibility of losing his job, he

Case Study 362 Words

362 words - 2 pages Case Study I Solution The following cost items are needed before a schedule of cost of goods manufactured can be prepared: Materials used in production: Prime Costs Less Direct Labor Cost Direct Materials Cost $ $ 545,000 220,000 325,000 Manufacturing Overhead Cost: Direct Labor Cost/ Percentage of Conversion Cost: $220,000/35% $ 628,571 rounded to nearest dollar ( this is total conversion cost) 100%-65% = 35

Case Study 415 Words

415 words - 2 pages CASE ANALYSIS MARY’S RICE TRADING I. Time Context In May 1999, Nicole Lopez was facing the challenge of expanding the number of corporate customers of their family – owned and manages rice – trading business. II. Point Of View Nicole Lopez, daughter of Mr. Rodrigo Lopez. Graduate of Business Administration from University of the Philippines III. Central Problem * How will they maintain the good customer relationship to