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Wilkerson Case Study

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Wilkerson Case

Production runs is the cost driver for setup labor as set-ups, “had to be performed each time a batch of components had to be machined in a production run.” [1]Receiving and production control’s cost driver is number of production units as the company only had one production department, and this is where all products were assembled and finished. Engineering is straightforward. Its cost driver is hours of engineering work. Finally, Packaging and shipping’s cost driver is number of shipments and not units because the same amount of work was required not matter the number of items in a shipment. After using this data, I applied the direct labor per unit, and materials cost per units to allocate the Direct Labor and Materials Expenses.

Exhibit 1

Activities Driving Cost Overhead Cost

Activity

Cost Driver

Traceable Cost

Machine-related expenses

Machine Hours

 $                  336,000.00

Setup Labor

Production runs

 $                    40,000.00

Receiving and production control

Production Units

 $                  180,000.00

Engineering

Hours of engineering work

 $                  100,000.00

Packing and shipping

Number of shipments

 $                  150,000.00

Exhibit 2

 

Overhead Rates by Activity

 

Activity

Costs

Transactions

Rate per Transaction

Machine-related expenses

 $336,000

 11,200

30

Setup Labor

 $40,000

 160

250

Receiving and production control

 $180,000

 24,000

7.5

Engineering

 $100,000

 1,250

80

Packing and shipping

 $150,000

 300

500

Exhibit

Product Costs

Activity

Valves

Pumps

Flow Controllers

Machine-related expenses

 $       112,500

 $       187,500

 $      36,000

Setup Labor

 $          2,500

 $        12,500

 $      25,000

Receiving and production control

 $        56,250

 $        93,750

 $      30,000

Engineering

 $        20,000

 $        30,000

 $      50,000

Packing and shipping

 $          5,000

 $        35,000

 $    110,000

Total Overhead Costs

 $       196,250

 $       358,750

 $    251,000

 

Direct Materials Expense

 $       120,000

 $       250,000

 $      88,000

Direct Labor Cost

 $        75,000

 $       156,250

 $      40,000

Total

 $       391,250

 $       765,000

 $    379,000

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