Please address these questions in the case study report.
1. What is the competitive situation faced by Wilkerson?
2. Given some of the apparent problems with Wilkerson’s cost system, should executives abandon overhead assignment to products entirely by adopting a contribution margin approach in which manufacturing overhead is treated as a period expense? Why or why not?
3. How does Wilkerson’s existing cost system operate? Develop a diagram to show how costs flow from factory expense accounts to products.
4. Develop and diagram an activity-based cost model using the information in the case. Provide your best estimates about the cost and profitability of Wilkerson’s three product lines. What difference does your cost assignment have on reported product cost and profitability? What causes any shifts in cost and profitability?
5. Based on your analysis for Question 4, what actions might Wilkerson’s management team consider in order to improve the company’s profitability?
6. What concerns, if any, do you have with the cost estimates you prepared in the answer to Question 4? What other information or analysis would you want for better cost and profitability estimates?
7. Wilkerson has been compensating salespersons with commissions on their gross sales volumes (less returns). Parker wonders whether the company should change this incentive system.