Essay About Inappropriate Cost And Wilkerson Company Case Study

Wilkerson Company Case Study
EXECUTIVE MEETINGWilkerson Company supplied products to manufactures of water purification equipment. Wilkerson’s major product line is pumps and afterward start with a unique design for valves that could produce to tolerances that were better than any in the industry. Besides producing pumps and valves, Wilkerson also produce flow controllers.The problem arise since there is price cutting  which where competitors make the reducing of rpices on the pumps price. All of this affected the major product line which is pumps. The price cutting in the market had led to declining company profit. Besides, the accounting method that Wilkerson’s uing is not suitable for them. Our recommendation where we are suggest implement Activity-based costing and Break-even point.  Table of ContentsEXECUTIVE MEETING        STATEMENT OF PROBLEM        Issue 1: Inappropriate cost allocating method        Issue 2: Drop in Company’s profit        CAUSE OF THE PROBLEM        Issue 1: Inappropriate cost allocating method        Issue 2: Drop in Company’s profit        DECISION CRITERIA AND ALTERNATIVE SOLUTION        Alternative Solution        RECOMMENDATION SOLUTION, IMPLEMENTATION AND JUSTIFICATION        Bibliography        STATEMENT OF PROBLEMThere are several issues that has been discovered in this case. Below are the details related to the issues.Issue 1: Inappropriate cost allocating methodWilkerson had used a simple cost accounting method. Cost accounting method is the framework used by the company to estimate the cost of their product for profitability analysis, inventory evaluation and cost control. Each unit of product was charged for direct material and labor cost. Besides, material cost was based on the prices oaid of components under annual purchasing agreements. For labor rates which icluding fringe benefits, were $25 per hour and were charged to products based on the standard run times for each product. The company had only one producing department, in which components wre both machined and assembled into finished products. The reason from this problem is where the result or the report that have been prepared will not be accurate. Since Wilkerson used the simple cost accounting method, they tend to used to calculate the overhead costs using the production line labour hours instead of the machine hours of the product. The conclusion here, it can say that the used of the simple cost accounting method is not really suitable for the Wilkerson to use since this company is producing 3 product that have different overhead cost or cost that related that may affect the total cost of the product itself.