Question

Wilkerson Case

Should Wilkerson consider lean accounting? Why or Why not?

Answer 1

Yes Wilkerson should consider lean accounting because taking into account variability among products in demand for indirect resources, high level of overheads and absence of linear relationship between the volume of activity and volume of production of individual products, we recommend to move from traditional volume-based costing to activity-based costing.

Based on the information about unit cost obtained by ABC we can recommend the company to review its policy in respect to flow controllers.

Having in mind the absence of price competition, customized nature of a product, and price inelastic demand, Wilkerson can change prices of individual flow controllers in order to secure healthy profit margin.

One of the ways of doing this is setting prices in accordance with the amount of resources consumed (activity-based pricing) by individual product or customer.

The company can also consider a set of action that might reduce the cost of flow controllers: change their design, adjust the production process to eliminate waste of resources, switch to batch production and delivery to decrease the cost per unit associated with production runs and number of shipments.