Wilkerson Company
1. What is the competitive situation faced by Wilkerson? The critical product in term of market competition is the pumps of Wilkerson Company. The pumps are Wilkersons major product line with a production of about 12,500 units per month. Pumps currently have the lowest gross margin among all products, because competitors had been reducing prices on pumps and Wilkerson adopted its prices in order to remain competitive and to maintain the volume. 2. Given some apparent problems with Wilkersons 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? Our conclusion is, that they should not adopt a …show more content…

The shift in cost and profitability is caused mainly by change of allocation of three major overhead costs: receiving and production control, engineering and packaging and shipping costs. 62 % of receiving and production control cost, 50% of engineering costs and 73% of packaging and shipping costs (totals 63% of total overhead costs) now is charged to cost of flow controllers based on ABC costing method. 5. Based on your analysis of question 4, what actions might Wilkerson´s management team consider to improve the company´s profitability? Based on our above analysis we see that is the flow controllers is a loss making product based on ABC costing model. Therefore we have to consider two options to improve the companys profitability: 1)to increase the sale price. In such cased to obtain the 35% gross margin the price should be increased $177 per unit. We believe such a price