Essay About Prices Of Pumps And Major Product Lines

Wilkerson Company Notes
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Wilkerson has major product lines in valves, pumps and flow controllersParker is the president of the company, Knight is the controller, and Scott is the manufacturing manager Competitors were starting to reduce prices of pumps, and prices were reduced to match in order to stay competitive and maintain volume. Did not want to lose its place as the major pump supplier Looking at the product profitability analysis for March 2000 there is a difference between the planned and the actual gross margin for pumps which is down to 15.5% from the expected 35%The company’s main expertise is in valves (known for their quality), but they found that they could utilize their existing resources in labor and machine equipment to produce pumps and flow controllers Wilkerson ran a tight ship. Production runs matched customer shipping requirements, they had implemented just-in-time deliveries, etc.Valves and pumps were machined automatically.Flow controllers need more labor in assembly, more production runs and shipments. Prices increased by more than 10% with no effect on demandCase analysis questionsWhat is happening in Wilkersons product markets?The Wilkerson Company Why is Wilkerson examining a “cost alternative”?Estimate product costs for valves, pumps, and flow controllers using ABC for overhead activities (primarily Ex. 1 & 4) and direct cost data from the Exhibits.Compare ABC costs to the standard unit costs (Ex. 2). Explain what causes such different results; be specific – use data from the case and your calculations. Hint: examine both the methods and the product characteristics.In your judgment, which method best illustrates the consumption of resources by each product? Why?What are the strategic implications of your analysis? What specific actions do you recommend to Wilkerson’s managers? What are the financial implications of your recommendations?In the following month, assume that quantities produced and sold, activities, and costs were all at standard. Prices for products did not change. How much higher or lower would net income reported under the ABC method be than net income reported under the present standard unit cost method? Why?