Case Study: WILKERSON

Activity Amount Drivers of cost Hours Cost/driver

Machine related expenses $336,000 Machine Hours 11200 $30.00
Setup labor $40,000 Production Runs 160 $250.00
Receiving and Production $180,000 Production Runs 160 $1,125.00
Engineering $100,000 Hours of engineerin work 1250 $80.00
Packaging and shipping $150,000 Number of shipment 300 $500.00
ABC
Activity Valves Pumps Flow controllers
Machine related expenses $15.00 $15.00 $9.00
Setup labor $0.33 $1.00 $6.25
Receiving and Production $1.50 $4.50 $28.13
Engineering $16.67 $15.00 $78.13
Packaging and shipping $0.11 $0.45 $4.40
Overheads per unit $33.61 $35.95 $125.90
Direct material $16.00 $20.00 $22.00
Direct Labor $10.00 $12.50 $10.00
Total $59.61 $68.45 $157.90
Traditional Costing Valves Pumps Flow controllers
Overheads per unit $30.00 $37.50 $30.00
Direct material $16.00 $20.00 $22.00
Direct Labor $10.00 $12.50 $10.00
Total $56.00 $70.00 $62.00
Product Data
Product lines valves pumps
Materials per unit 4 5
Materials cost per unit $16.00 $20.00
Direct labor per unit .40 DL hour .50 DL hour
Direct labor $/unit $10 $13
Machine Hours per unit 0.5 0.5
Monthly production and operating statistcs
valves pumps
Production(units) 7500 12500
Machine Hours 3750 6250
Production runs 10 50
Number of shipment 10 70
Hours of engineering works 250 375
Comparison of traditionaL costing wIth ABC
Valves Pumps
Selling price $86.00 $87.00
Traditional Costing unit cost $56.00 $70.00
ABC unit cost $59.61 $68.45
Difference $3.61 $1.55
Conclusion: costs of valves and flow controllers are underestimated whereas cost of pumps is overestimated
Flow controllers
10
$22.00
.40 DL hour
$10
0.3
flow controllers total
4000 24000
1200 11200
100 160
220 300
625 1250
Flow controllers
$105.00
$62.00
$157.90
$95.90
costs of valves and flow controllers are underestimated whereas cost of pumps is overestimated