Harvard Business School Case- Wilkerson Company

1. 1 Wilkerson Ella Shen Donna Huang Summer Hu William Lu Nora Wang Alex Zhang

2. 2 Agenda

4. Combat the declining margin

6. It specializes in producing of 3 products:

8. Uses volume-based costing because it is less costly3

9. 4 Manufacturing Process

10. 5 Market Analysis- PEST

11. 6 Porter’s 5 Forces Analysis- Rivalry

12. 7 Porter’s 5 Forces Analysis- Buyer Power

13. 8 Porter’s 5 Forces Analysis- Supplier Power

14. 9 Porter’s 5 Forces Analysis-Threats of New Entrance

15. 10 SWOT Strengths High quality product Customer loyalty Just-in-time deliveries Weaknesses Cost accounting system Non-value added activities Opportunities Potential profit in flow controller Threats Fierce competition 10

16. 11 Competitive Strategy

17. 12 Problems: Inappropriate cost allocating method Overhead @300% of direct labour costs Reasons Usage of overhead activity is not in proportion to the volume of output Wrong cost drivers for overhead expense Implications Causes Misleading Profitability Analysis Inappropriate Pricing Decision Ineffective cost management Problem

18. 13 Alternatives

19. 14 VBC v.s ABC

20. 15 Profitability

21. 16 Flow Controller

22. 17 Status Quo

23. 18 Alternative 2- drop flow controller line 3.04% Increase

24. 19 Alternative 2:Drop the Flow Controller

27. breakeven point analysis  8.7% reduction in cost

29. 22 Alternative 3: Adjustment to flow controller

30. 23 Matrix

31. 24 Implementation- Master Plan Change volume base costing to activity based costing High Increase the price of Flow Controllers 0.5 years Reduce the cost of non-value added activities Medium Reduce the price of valves and pumps if price competition occurs 1 year Low Time from Today 1.5 years +

33. So does the equilibrium price and quantity

34. All price and cost given for flow controller is an averageRisks & Mitigation

35. 26 Thank you for listening! Questions?

36. 27 1. US Government Info: Bush Tax Cuts: It's Your Money http://usgovinfo.about.com/library/weekly/aa010201a.htm 2． Bureau of Economic Analysis, Department of Commerce http://www.bea.gov/newsreleases/national/gdp/2000/gdp200a.htm 3. Gross Domestic Product by Industry for 1998–2000 http://www.bea.gov/scb/pdf/2001/11november/1101gdpxind.pdf References

37. 28 Volume-Based Costing

38. 29 ABC Cost Driver Rate