Abc Costing - Conclusion

For this company, ABC system shows more accurate information about its costs resulting from activities, helping it to identify its competitive factors among other competitors.

1. At first, based on ABC system and using more cost drivers for the cost estimation, prices of all three kinds of products should be readjusted due to much more accurate information about the actual production costs. Valve's and Pump's price should be reset down to match its actual cost, which also means matching the market price and improve its market share far from now. However, the Wilkerson's has to check if the both price decreased will harm the total profit of company. Hence, we can deduct that Pumps and Valves are more attractive for the company than they actually thought before. The shifts in costs and profitability are happened due to the change of cost method, to a more accurate method. Regarding Flow Controllers, the Wilkerson's can take advantage of the favorable competitive situation in this inelastic market, and could set its price from $62 to $115.38, implying that company lost a lot of profit before. Moreover, the price setting depends on the market reaction.

2. When the company compares its price in ABC system with the price in market, some implications may appear. With planned gross margin is 35%, Valve's target selling price is 71.03, smaller than the actual selling price, showing that this company could have more advanced manufacturing technology and become the cost leader in market. But for Pumps and Flow controllers, its target selling price is higher than actual selling price. However, this situation doesn't mean that the company should cut down these two products' selling, at least not always. The higher cost may cause from the higher quality, or more customized production.

3. Lastly, according to the packaging and shipping fee. The base for the variable cost is barely the number of shipments made and the cost