Wilkerson’s competitive situation is that of declining profits due largely to chronic and severe price-cutting on pumps, the company’s main product in terms of units produced (Exhibit 4). Being a standard commodity product, demand for pumps is price elastic, and customers look for the cheapest price irrespective of the company they buy from. With its competitors constantly lowering their prices, Wilkerson’s only option for remaining competitive in the pump market was to match these price cuts. As a result, the actual selling price of pumps is $87, well below the target selling price of $107.69 (Exhibit 2). Consequently, Wilkerson’s actual gross margin of 19.5% on pumps is well below the company’s uniform target line of 35% for all …show more content…
This suggests that Wilkerson’s traditional cost structure is fairly accurate when applied to valves. The accuracy of this cost method for Wilkerson’s initial product likely explains its continued use when the company expanded to pumps and flow controllers. Another factor that may be positively contributing to valve sales is the customer loyalty Wilkerson established due to its high-quality products. While valves and pumps are commodity products, flow controllers are highly customized products that require more detailed manufacturing, whereas pumps and valves can be manufactured in an “assembly-line” style. As Exhibit 4 shows, flow controllers have substantially more production runs, shipments, and engineering work than valves and pumps, despite having the least production and machine hours per work. The large number of production runs and hours of engineering work are due to the unique nature of each product, requiring more detailed engineering and different components for each product. Since each flow controller is relatively unique, it is more difficult for Wilkerson to ship in bulk, which explains the fact that over 70% of Wilkerson’s total shipments are allocated to flow controllers. Despite all this, Wilkerson maintains a healthy 41% gross margin on flow controllers, even after raising prices by 10% of the target price. This is likely due to either a high-quality product relative to its competitors, or the standard unit cost of flow controllers being
Owens & Minor is a distributor of surgical and medical supplies to hospitals and other health care facilities. Due to changing demand from customers, the company is facing increased operating costs, which has resulted in lower profit margins and even losses. In 1993, O&M recorded an $18 million profit, which was reduced to a loss of $11 million in 1995. The entire industry is experiencing similar difficulties. In an effort to resume profitability, O&M is evaluating alternatives to “cost-plus pricing”. Cost-plus pricing does not reflect the true cost of the services provided by O&M. Customers are demanding more of O&M while
As we continue to move toward the end our quarterly objectives. I wanted to take the time to explain some of our costs. In our particular field of designing and manufacturing products, we are always engaging in ways that we can mitigate loss and improve our processes. Performing such changes will give a stronger presence in the market by allowing us to remain competitive.
In early May 2008, talk began between president of Flinder Valves, Bill Flinder and Tom Eliot, chairman and CEO of RSE about a possible acquisition of Flinder Valves by RSE. The industrial manufacturing industry had taken a hit due to rough economic times and the acquisition made sense. Both leaders were very concerned about the challenges and risks of the deal. Flinder was a company that engineered and manufactured specialty valves and heat exchangers. These products required extensive research and development and they were one of very few firms working in these types of applications. A bullk to FVC’s sales came from defense and aerospace applications. They were known for their
Once confirmation is received, I add details of the guest and apartment into an excel spreadsheet that we use to keep track of how many apartments have been book etc. I add the confirmation document into a folder where apartment confirmations are stored. Also, I keep my own records on Outlook.
Wilkerson employs a Normal Cost System, which means that they use predetermined overhead rates along with actual costs for direct material and direct labor. Normal costing systems are appropriate when overhead costs are a relatively small percentage of total manufacturing costs and product diversity is limited. For Wilkerson, normal costing does not make sense. Overhead costs make up over 50 percent of total manufacturing costs and their product offering is relatively more diverse. This indicates that the current accounting system in place may be distorting costs significantly. Supporting data:
Brand awareness was low in the industry, problems were frequent breakdowns, re-installations, and leaking/stiff valves, besides pressure and temperature inconsistencies, and nearly half the sales were from replacements. The new Quartz product line is experiencing a very slow adoption
In order to meet customer demands for higher product quality, to comply with federally-mandated environmental regulations, and to reduce production costs, HCC must spend $2,000,000 within the next three years to upgrade equipment. The upgrade is expected to result in production efficiencies that will lower material and labor costs by reducing defective products, process waste, in-process inventory, and production man-hours through simplified work processes. It has been over a decade since significant modifications were made to the production facilities. Those changes were mostly technical in nature and did not substantially alter work processes or reduce overall employment. The average productivity gain in the industry for the past five years has been 3% per year. Financing for the loan to purchase the equipment
However, as a new member with a new product, electronic product in North American market, the reputation is also an important attribute. Especially, quick delivery time is a key attribute for this company, due to the demand of quick delivery in all markets. Moreover, the manufacturing process of the new product, electronic product, on which our company will definitely focus, has a lot demands. Such as, technology, innovation and quick delivery time even the ability to make the product be the first one appearing in the market (other company, which is developing the same product, may become our competitive opponents). Especially, technology is predicted to play the most important role in the manufacturing process. On the other hand, the traditional cost system has a lot of limitations. Traditional costing system focuses on the cost reduction and the efficiency, particular the products with relatively few standardized components; Clifton, however, produces a wide range of airplane components. In addition, nonfinancial aspects of
Armstrong may be upset about Harrington because she estimated that there was only an 80 percent chance the improvements would be dramatic enough to warrant the full 100 percent price premium. Again, Orion is the leading designer and manufacturer of industrial valve systems. For such leading and innovative company, her assumption seems to be quite low. It is obvious that her low expectation for dramatic improvement doesn’t make significant difference in the EMVs. In other words, if she proactively dedicates her effort to redesigning and increases the possibility for dramatic improvement to 90%, the EMV will go up to $141,500 so that Armstrong can positively go ahead with the development efforts (see Figure 3).
However, this system was found to be “ineffective for costing and bidding individual parts.” Id. While some machines produced low cost parts at high volume, other machines were producing high cost parts at low volume, which created cost discrepancies between various machines and thus misallocation of
Wriston’s Detroit plant is no longer a viable operation due to long-term capital underinvestment and product-process mismatch. It is recommended that the plant be phased out of operations over a five-year period with production and staff gradually shifted to a new plant to be built in the Detroit area. Further, it is also recommended that division accounting procedures and evaluation mechanisms be modified to allocate revenues/costs allowing for the synergistic benefits of Detroit’s products, and to recognize inherent manufacturing complexities, respectively. Issues Detroit’s production is unique when compared to other Wriston plants. Runs are typically lowvolume, involve significant set-up time, and vary significantly due to the sheer
Being able to increase productivity and revenues has always been the greatest challenge of any manager, and the manager of RL Wolfe, a plastic pipe manufacturer, was not an exception. Because of the low-efficiency percentage RL Wolfe had in comparison to their its competitors, John Amasi, director of Production and Engineering , had no other choice then came up with a new way of improving RL Wolfe production methods.
Growing up was a rush, just by one touch, keeping secrets bottled up inside. Fear of love change in mother’s eyes. I had to wipe my own tears, paranoid of my own fears it all happened so fast almost like a dream; a flash my youth pulled away in a back room in just one day, that day forced to receive it I blocked it away and never believed it (victim poem).
The significant shift in cost and profitability of flow controllers can be mainly explained by the considerably higher engineering and setup expenses (machines and labor). The latter arises due to the higher component number (10) of the flow controllers (resulting in higher complexity) which leads to a higher number of production runs and, thus, raises the number of setup hours. The number of production runs is further increased by the on average small batch sizes (see Table 4).
The major problem faced by Destin is that pumps are losing profits due to intense price competition. Destin was forced to match the continuously reduced price from its competitors despite of the high production costs. As a result, the gross margins in the latest month have fallen from 35% to 22%. The reason why the company has been stuck in such difficulty, as Peggy pointed out in the meeting, is primarily because its competitors might be using a revised costing system while Destin is still using the traditional one.