Wilkerson Company Case : Cost Accounting

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 28.13

Setup cost Valve Pump Flow Controller Total

No. of Prod. Runs 10.00 50.00 100.00 160.00

Set up labor cost 40000.00

Cost / Prod. Run 250.00

Total Cost 2500.00 12500.00 25000.00

$ Setup cost / unit 0.33 1.00 6.25

Packaging & Shipping Valve Pump Flow Controller Total

No. of shipments 10.00 70.00 220.00 300.00

Shipping Cost 150000.00

Cost / shipment 500.00

Total Cost 5000.00 35000.00 110000.00

$ Pack & ship Cost /...