Wilkerson Company HBS Case Assignment

Wilkerson Company HBS Case Assignment

First, read the Wilkerson case carefully. Then, think about the following questions (on your own, and in discussion with your team-members, if any):

1. What is the competitive situation faced by Wilkerson for each of its three products? You should go above and beyond repeating what is written in the case about profitability increasing / decreasing, etc. You should think about the nature of the market and the competitive strategy employed by Wilkerson for each product, based on what is given and your own inferences.
2. Given some of the apparent problems with Wilkerson’s cost system, should executives abandon the idea of assigning overhead to products altogether, by adopting a contribution margin approach with its products, instead?

Hint: a contribution margin approach = measuring product profitability as simply price less direct materials and direct labor costs, and treating all manufacturing overheads as period expenses.

3. How does Wilkerson’s existing cost system work? I.e., How many OH cost pools are there? What is the allocation base(s)? And after you describe these, think about what kinds of implications would this OH allocation system have for the costing. Are the cost pools homogenous or heterogeneous? Are the allocation bases primarily based on volume or based on complexity?
4. Does it seem to you that Wilkerson might be the kind of company hat can benefit from switching to an activity-based costing (ABC) system? (This question will need you to draw on your experiences from Plastim and Classic Pens. What was it about those companies that caused problems with OH allocation?)
5. What would an ABC costing system for Wilkerson look like?

Hint: Develop and chart out the ABC.1 exhibit for Wilkerson. An ABC.1 exhibit lays out the OH cost pools (ideally based on activities), $ OH in each cost pool (disaggregated by activity), and allocation bases for each cost pool, with associated information on total quantity of that allocation base, and distribution of the allocation base across the products.

6. Test your intuition with this optional question: Before doing any calculations, simply by reviewing your ABC.1 exhibit, can you predict which products will be most affected by using the ABC costing system?
7. What are there vised cost and profitability of each of the three products, using the ABC costing system?

Hint: Develop and complete the ABC.2 exhibit for Wilkerson. An ABC.2 exhibit lays out operating income, with OHs allocated using activity-based costing.

8. What do the ABC-based cost and profitability calculation revealable out each of the products?
9. Based on your analyses with the ABC costing system, what actions might Wilkerson’s management team consider, to improve the company’s profitability? Points will be given for thoughtful, creative answers with serious justification. Imagine that you were working for a consulting company that was being brought in to Wilkerson to give them suggestions.
10. What are the limitations of the cost estimates you prepared in your answer to question 7? I.e., what other information or analysis would you want, for better cost and profitability estimates? What assumptions were you forced to make for lack of explicit information, that you might want more data to justify or modify?
11. Wilkerson has, so far, been compensating salespersons with commissions based on gross sales volume less returns. Is a better way to calculate commissions based on the analysis you just did?

Prepare a write-up with succinct answers to each of these questions. You may formulate your answers as paragraphs or as bullet points, as long as you convey the necessary information. Please restrict your write-up to 4 sides of letter paper, typed and single-spaced, at the maximum. To this, please attach Exhibits ABC.1 and ABC.2, and any other exhibits you may want to add to convey your points. All answers and exhibits must be neatly typed and formatted in a readable way.