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The difference in the gross margin for flow controllers when the Traditional Cost System is used and when the BBC Cost System is used is caused by the different allocation approach of overhead, increasing manufacturing overhead from $30. For solving any Wilkerson Co case, Financial Analysis is of extreme importance. VRIO and VRIN analysis can help the firm. One error that some students might make is to allocate the “other” costs to channels, by assuming a cost driver.

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This means that to identify a problem, you must know where it is intended to be. Each component requires purchasing, receiving, setup and machining activity. For the cost of equity, you can use the CAPM model. This gives the organization a competitive advantage over other firms, unlike a red ocean strategy. What is the structure of the existing cost system? Direct labor $271,250 Direct material $458,000 Overhead $806,000 Products ? (300% of DL$) What are the features of this system? High overhead costs ($806,000) being applied using DLS$ ($271,250), leading to high burden rate: 300% Single production cost center Some processes use automated machines; different ratios of machine hours to DLH; probably better to have costs driven by machine hours in automated processes Simple, easy to implement since already measuring DL$ at the individual product level Fails to capture product diversity amp; complexity: valves and pumps have only 4-5 components; flow controllers have 10 components.

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Offer to work with the critic to improve the model to the point where he/she is satisfied it captures economically reality sufficiently well (add cost centers or new activities, use more accurate cost drivers (duration, intensity), …. We also find in this regard that students need to be referred back to the text section, “Why Overhead Rates Are Predetermined,” especially in later discussions of the overhead volume variance. Warning! This article is only an example
Visit Website and cannot be used for research or reference purposes. Estimates are more subjective and have higher measurement error– especially on engineering effort.

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(2018). Labor rates, including fringe benefits, were per hour. (2010). Financial reporting standards explicitly require companies to use traditional costing for external reporting purposes.

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But then expect that the manager will take some action to address current drains on company profitability. Must act to exploit this unused capacity either by increasing the volume the company produces and sells or by eliminating resources (capacity) no longer needed. Moreover, pricing of the products on this contribution margin approach would result in lower sales price of the products, negatively affecting the profits of the company. The strengths and weaknesses are obtained from internal organization.

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Examples of problems in this area:Campbell Soup 17 different specifications for diced carrots in its soups. Wilkerson Co Financial analysis can, therefore, give you a broader image of the company. , Swan, H. The internal rate of return is a tool used in investment appraisal to calculate the profitability of prospective investments.

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, Levine, R. Entrepreneurial paths to family firm performance. Wilkerson Co. Department of Economics.

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These forces are used to measure competition intensity and profitability of an industry and market. (This is a new case with the Eleventh Edition. Allocation of direct labor costs to the products, $25 per hour, was based on the number of direct labor hours per unit.

You can use Porter Five Forces to analyze the industry in which Wilkerson Line operates in and what are the levers of profitability in those segments – differentiation, Costs, Financial analysis, Pricing. Estimates are more subjective and have higher measurement error– especially on engineering effort.

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“Strategic actions” to reduce the quantity of activities Wilkerson has to perform: Pricing – be more aggressive on pricing flow controllers; continue to meet competition for pumps since profit margins still reasonable; valves – no reason to start discounting the price if customers are not complaining or defecting, but watch for competitors undercutting our prices to steal customers. .