...For the exclusive use of J. Wang, 2016. 9-101-092 REV: AUGUST 5, 2003 ROBERT S. KAPLAN Wilkerson Company The decline in our profits has become intolerable. The severe price cutting in pumps has dropped our pre-tax margin to less than 3%, far below our historical 10% margins. Fortunately, our competitors are overlooking the opportunities for profit in flow controllers. Our recent 10% price increase in that line has been implemented without losing any business. Robert Parker, president of the Wilkerson Company, was discussing operating results in the latest month with Peggy Knight, his controller, and John Scott, his manufacturing manager. The meeting among the three was taking place in an atmosphere tinged with apprehension because competitors had been reducing prices on pumps, Wilkerson’s major product line. Since pumps were a commodity product, Parker had seen no alternative but to match the reduced prices to maintain volume. But the price cuts had led to declining company profits, especially in the pump line (summary operating results for the previous month, March 2000, are shown in Exhibits 1 and 2). Wilkerson supplied products to manufacturers of water purification equipment. The company had started with a unique design for valves that it could produce to tolerances that were better than any in the industry. Parker quickly established a loyal customer base because of the high quality of its manufactured valves. He and Scott realized that Wilkerson’s...
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...ROBERT S. KAPLAN Wilkerson Company The decline in our profits has become intolerable. The severe price cutting in pumps has dropped our pre-tax margin to less than 3%, far below our historical 10% margins. Fortunately, our competitors are overlooking the opportunities for profit in flow controllers. Our recent 10% price increase in that line has been implemented without losing any business. Robert Parker, president of the Wilkerson Company, was discussing operating results in the latest month with Peggy Knight, his controller, and John Scott, his manufacturing manager. The meeting among the three was taking place in an atmosphere tinged with apprehension because competitors had been reducing prices on pumps, Wilkerson’s major product line. Since pumps were a commodity product, Parker had seen no alternative but to match the reduced prices to maintain volume. But the price cuts had led to declining company profits, especially in the pump line (summary operating results for the previous month, March 2000, are shown in Exhibits 1 and 2). Wilkerson supplied products to manufacturers of water purification equipment. The company had started with a unique design for valves that it could produce to tolerances that were better than any in the industry. Parker quickly established a loyal customer base because of the high quality of its manufactured valves. He and Scott realized that Wilkerson’s existing labor skills and machining equipment could also be used to produce...
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...Case “Wilkerson Company” • The case is available for purchase at the NYUBookstore as a digital coursepack (in store or online at http://www.bookstores.nyu.edu). • Form your own group of at most 4 students (including yourself). Each group submits one solution. Show your calculations for problems 2-5. 1. What is the competitive situation faced by Wilkerson? 2. What is the structure of the existing (traditional) costing system? Evaluate the features of this system. Should Wilkerson abandon its overhead cost allocation system and make managerial decisions based on contribution margin (price less variable costs); thereby in effect using marginal costs rather than average costs? Note: only direct materials and direct labor costs are assumed to be variable here. 3. Compute revised product costs based on an ABC (activity-based costing) analysis. Interpret your findings regarding the profitability of the different products. 4. Should Wilkerson worry about whether they are at or below full capacity when computing the OH rates? For example, March was a “typical month”, but at other times last year the demand was higher (machine hours = 12,000 vs. 11,200; 180 runs vs. 160; and 400 shipments vs. 300). Discuss verbally the issues involved. 5. Ignore the information given in 4. Suppose Wilkerson begins the month of March with zero inventory. Over the course of the month, they sell the entire output of valves and flow controllers, but only half of the pumps they are producing...
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...Case “Wilkerson Company” • The case is available for purchase at the NYUBookstore as a digital coursepack (in store or online at http://www.bookstores.nyu.edu). • Form your own group of at most 4 students (including yourself). Each group submits one solution. Show your calculations for problems 2-5. 1. What is the competitive situation faced by Wilkerson? 2. What is the structure of the existing (traditional) costing system? Evaluate the features of this system. Should Wilkerson abandon its overhead cost allocation system and make managerial decisions based on contribution margin (price less variable costs); thereby in effect using marginal costs rather than average costs? Note: only direct materials and direct labor costs are assumed to be variable here. 3. Compute revised product costs based on an ABC (activity-based costing) analysis. Interpret your findings regarding the profitability of the different products. 4. Should Wilkerson worry about whether they are at or below full capacity when computing the OH rates? For example, March was a “typical month”, but at other times last year the demand was higher (machine hours = 12,000 vs. 11,200; 180 runs vs. 160; and 400 shipments vs. 300). Discuss verbally the issues involved. 5. Ignore the information given in 4. Suppose Wilkerson begins the month of March with zero inventory. Over the course of the month, they sell the entire output of valves and flow controllers, but only half of the pumps they are producing...
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...1. Using the information in the case, design an activity-based costing system and estimate product costs and gross margin percentages for valves, pumps and flow controllers. Justify your reasons for your ABC system design and computations. As per the ABC costing system, the 5 overhead cost drivers that can be identified are: A. Product Sustaining Activity Costs (i) Engineering Costs B. Batch Activity Costs (i) Receiving & Production Costs (ii) Setup Labor Costs (iii) Packaging & Shipping costs C. Unit Level Activities (i) Machine utilization cost Calculation for cost per unit (per piece) for each of the overhead activities for the 3 products Machine Valve Pump Flow Controller Total Machine hours 3750.00 6250.00 1200.00 11200.00 Machine hrs / unit 0.50 0.50 0.30 machine related exp. 336000.00 Cost / machine hrs 30.00 $ Machine / unit 15.00 15.00 9.00 Engineering Valve Pump Flow Controller Total Hrs Engg Work hrs 250.00 375.00 625.00 1250.00 Engg Work hrs / unit 0.03 0.03 0.16 Engineering Cost 100000.00 Cost / engg work hr 80.00 $ engg hrs / unit 2.67 2.40 12.50 Receiving & Prod.Control Valve Pump Flow Controller Total No. of Prod. Runs 10.00 50.00 100.00 160.00 No. of components 4.00 5.00 10.00 Receiving & Prod. Control Cost 180000.00 Cost / Prod. Run 1125.00 Total Cost for all components of a prod. 11250.00 56250.00 112500.00 $ Receiving Cost / unit 1.50 4.50...
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...Wilkerson Co. Case Group 6 #1) Wilkerson is dealing with many different factors when it comes to the competition in their industry. First, the main issue in regards to competition is the fact that all the competitors are cutting the price on their pumps in order to gain market share and creating a price war within the industry. This is something that happens often in very competitive industries and usually the largest companies survive such tactics. This tactic is good for the consumers in the short term because they are able to obtain commodity products at reduced prices. Dominant firms with large assets usually survive a price war pushing smaller companies out of the industry and gobbling up the market share that was left because of the companies that we forced to close. This can also be bad for the consumer in the long-term because it reduces the competition in the market which is what controls the prices, if there isn’t much competition, one firm could have a monopoly and charge increase prices since there isn’t competition to keep their prices fair creating price gouging. Another situation happening in the industry is the fact that Wilkerson’s competition has not realized that there are opportunities for profit in the flow controllers, which are more labor intensive but seem to withstand increased prices. Wilkerson was able to maintain demand with a 10% price increase on their flow controllers. There are many different varieties of flow controllers in the industry...
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...Wilkerson Company manufactures water purification equipment with unique high quality valve design. Recently, the company has experienced deterioration in pre-tax margins to below 3%, far below the historical 10% margins and sales has fallen bellow 20% due to competitive situation that is driving prices down on Pumps (commodity products). These products are produced in high volumes for a market with high price competition. Wilkerson is a quality leader, but should be prepared to compete on price. The price competition had lead Wilkerson to analyze its production volume based allocation system. 2. Given some apparent problems with Wilkerson’s cost system, should executives abandon overhead assignment to products entirely by adopting a contribution margin approach in which manufacturing overhead is treated as a period expense? Why or why not? 3. Prepare the following calculations: a. Calculate the unit product cost for each product using the direct-labor-based cost allocation system. b. Calculate the unit product cost for each product using activity based costing to allocate the cost of manufacturing overhead, as well as profitability for each product line. Overhead cost pools include machine, setup, receiving/scheduling, engineering support and packing/shipping products. 4. Why have cost shifts occurred? 5. Looking only at product costs under the direct-labor-based cost allocation system, what actions can management take to reduce product costs? ...
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...market and production complexity for each product, and marketing concerns. Wilkerson is a manufacturing company specializing in manufacturing components for water purification systems; the company makes valves, pumps, and flow controllers. Wilkerson is a supplier to companies that actually manufacture the water purification equipment. The relevant officers of the organization are: * Robert Parker, President * Peggy Knight, Controller * John Scott, Manufacturing Manager According to the United States International Trade Commission, “U.S. exports of water filtration and purification equipment reached $1.8 billion in 2011, increasing by 20 percent since 2007 and by 110 percent since 2002, with Asia the leading export destination. Due to insufficient availability of water, rising incidence of extreme weather events, and increasing global demand for water resulting from demographic shifts, urbanization, and industrialization, U.S. exports of water treatment equipment are expected to remain high.” So, it is safe to assume that this is a highly competitive industry with high barriers to entry and attractive growth prospects due to the fact that this is an industry that is arguably in the Growth Phase of the industrial life cycle. The high barriers to entry can be attributed to the complex nature of the equipment, the production process, and volume. The current situation for Wilkerson is that 2 out of its 3 product lines are currently underperforming the target...
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...Wilkerson Company Analysis June 30th, 2014 1. If Wilkerson were to cut prices, based on contribution margin, to just cover short-term variable costs, what consequences could it experience? Contribution margin-based pricing attempts to maximize profit generated from the sale of each unit of product by maximizing the difference between that product’s price and variable costs, or contribution margin. Under this pricing strategy, only variable costs, which increase with a higher sales volume and decrease with a lower sales volume, are considered; fixed costs are assumed to be constant over a range of sales levels and are thereby not factored in when determining prices. Since Wilkerson manufactures and sells three different products, we can use a sales-mix approach break-even analysis to determine the effect that this strategy would have on the company’s sales. In our analysis, we have assumed constant fixed costs and sales mix. Using the predetermined sales mix (calculated by individual product sales as a percentage of total sales) presented in Wilkerson’s operating results and statistics, we are able to calculate a weighted combined contribution margin of 66.12% and fixed costs of $1,365,650 (shown above). This yields a break-even sales revenue of $1,365,650/66.12%=$2,065,387 (see below). Using the sales mix, we can calculate break-even sales units and sales revenue for each product: Based on the break-even operating results above, Wilkerson’s sales revenue will be...
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...1)Existing cost system Products | Units | Direct Labor | Direct Material | Total Direct Costs | Overhead Costs | Total Costs | Valves | 7500 | 75000 | 120000 | 195000 | 225000 | 420000 | Pumps | 12500 | 156250 | 250000 | 406250 | 468750 | 875000 | Flow Controllers | 4000 | 40000 | 88000 | 128000 | 120000 | 248000 | All overheads allocated in proportion to direct labour cost. This is not an accurate reflection of the true overhead costs of each product type. 2)ABC SYSTEM Cost per unit (hour or run) of: | | | | Machine related expenses | Setup labor | Receiving and production control | Engeneering | Packaging and shipping | 30 | 250 | 1125 | 80 | 500 | Activity-based costs system: Products | Total Direct Costs | Machine related expenses | Setup labor | Receiving and production control | Engineering | Packaging and shipping | Total manufacturing overheads | Total Costs | Valves | 195000 | 112500 | 2500 | 11250 | 20000 | 5000 | 151250 | 346250 | Pumps | 406250 | 187500 | 12500 | 56250 | 30000 | 35000 | 321250 | 727500 | Flow Controllers | 128000 | 36000 | 25000 | 112500 | 50000 | 110000 | 333500 | 461500 | Profitability: Method | Product | Units | Cost-per-unit | Planned gross margin | Target selling price | Actual selling price | Actual gross margin | Existing method | Valves | 7500 | 56 | 35% | 86,15 | 86 | 34,9% | | Pumps | 12500 | 70 | 35% | 107,69 | 87 | 19,5% | | Flow controllers | 4000 | 62 | 35% | 95,38 | 105 | 41,0% | ABC |...
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...Todd Schueler Week 2 Assignment 1: Wilkerson Company Case Analysis Questions 3, 4, and 6 Saturday, April 05, 2014 3.) The estimated product costs for valves, pumps, and flow controllers using ABC for overhead activities (primarily Ex. 1 & 4) and direct cost data from the Exhibits are: * The Valves total product variable costs are $195,000, the Valves total fixed costs are $149,990.31 and the Activity Based Costing Valve cost per unit it $46. * The Pumps total product variable costs are $406,250, the Pumps total fixed costs are $316,501.94 and the Activity Based Costing Pumps cost per unit it $58. * The Flow Controllers total product variable costs are $128,000, the Flow Controllers total fixed costs are $339,507.75 and the Activity Based Costing Flow Controllers cost per unit it $116. 4.) In comparing ABC costs to the standard unit costs, both the methods and the product characteristics (Ex. 2), the causes of such different results are: ABC costs are Manufacturing Overhead: Machine-related expenses, Set Labor, Receiving and production control, Engineering, Packaging and shipping. Standard unit costs are Variable Costs: Direct Labor and Direct Materials. The physical numbers are different Total Cost for Valves in SUC is $56 and $46 in ABC a change of -18%, Total Cost for Pumps $70 and $58 in ABC a change of -17%, Total Cost for Flow Controllers $62 and $116 in ABC a change of 89%. “Traditional allocation systems pool costs by departments, then...
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...Wilkerson Company Questions for Class Discussion 1. What is the competitive situation faced by Wilkerson? Wilkerson’s competitors have cut prices on their pumps, in order to maintain market share, Wilkerson also cut the price of their pumps. This dropped Wilkerson’s GM by about 15%. At the same time, Wilkerson was able to increase the price of their flow controllers by 10% without a drop in demand. The manufacturing manager now feels that the competitors’ valves are of equal quality as that of Wilkerson. Currently, the competitors have not changed their prices and GM has been maintained at 35%. Wilkerson should be aware that its competitors could start dropping the prices of their valves at which time, Wilkerson would need to drop their prices or lose market share. In essence, they would be in the same situation as they are in now with the pumps. 2. Given some of the apparent problems with Wilkerson’s cost system, should executives abandon overhead assignment to products entirely by adopting a contribution margin approach in which manufacturing overhead is treated as a period expense? Why or why not? The current method does not provide and accurate representation of the actual cost to produce the 3 products. The overhead rate is 300% and directly related to the labor costs. Many of the overhead hosts are actually batch level activities and not related to the number of units produced. While adopting the approach in which manufacturing overhead is treated...
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...With these developments, it is obvious that conflicts between parties of different nationalities occur and liability to tax on income of foreigners especially among those engaging in trading venture. Whilst the laws affecting domicile and residence may be sufficiently settled, it is paramount for courts to pursue a detailed analysis to ascertain specific preliminary issues so as to avoid controversial rulings. Courts often handle numerous financial cases that involve what can be best described as foreign or international elements. In such cases, court must decide whether it has the jurisdiction under the Family Law Act 1975 to make a decision on such cases. In the event that it is determined that the court is invested with the jurisdiction to determine the case, the court has to consider whether there is a system of law in foreign country that also has the jurisdiction to handle the case. As it was addressed in the case Attorney General of New Zealand v Ortiz [1984] AC 1, these benefits and costs to either party if the case resolution is made in foreign country as compared with the apparent country should also be a subject of concern. [1] Legal systems in most countries around the world adopt community property regime, which takes effect at the inception of marriage or at the time of divorce. For instance, California and Massachusetts in the United States have adopted community property regimes that support equal division of assets upon divorce. However, this provision...
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...Adapted from Bernhardt & Kinnear (1988). Cases in marketing management, pp. 6-16. Plano, TX: Business Publications, Inc. Pay careful attention to the following points. They are often used by instructors to evaluate either a written or oral analysis. 1. Be complete. Each area of the situation analysis must be discussed, problems and opportunities identified, alternative presented and evaluated using the situation analysis and relevant financial analysis, and a decision must be made. An analysis that omits part of the situation analysis or only recognizes one alternative is not a good analysis. Second, each area must be covered in-depth and within insight. 2. Avoid rehashing case facts. Every case has a lot of factual information. A good analysis uses facts that are relevant to the situation at hand to make summary points of analysis. A poor analysis just restates or rehashes theses facts without making relevant summary comments. 3. Make reasonable assumptions. Every case is incomplete in terms of some piece of information that you would like to have. A good case analysis must make realistic assumptions to fill in the gaps of information in the case. For example, the case may not describe the purchase decision process for the product of interest. A poor analysis would either omit mentioning this or just state that no information is available. A good analysis would attempt to present this purchase decision process by classifying the product and drawing upon real life...
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...are given. It is understandable then that we should seek out more opportunities to apply our skills and make more positive impacts within our jurisdictions. It is this general attitude that led us to get involved in investigating cold cases. How We Got Started Mark had, for several years, been consulting with our Coroner’s Division as a forensic anthropologist. During this time he came to learn that there were numerous coroners’ cases in which the identity of the decedent was unknown. These cases were kept in three-ring binders on a shelf in the Sergeant’s office. Over the years, in the course of this forensic work, we would discuss these cases and the progress that was being made on them. The conversation usually ran along the lines of us asking “any luck with that 1980 homicide victim?” and the sergeant answering “well, we’ve gotten so many new cases that I haven’t been able to even look at it yet.” This went on for a few years and through two different sergeants. One day we, as a crime analysis unit, were brainstorming about how we could broaden our “client base”, as it were. We had been successful in integrating ourselves into our Investigations Bureau and had been involved in numerous major cases. And, of course, we had always been active in producing tactical and strategic analyses for our patrol personnel. But we knew that we could be doing more, particularly given the size and responsibilities of our agency. It was during...
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