Kanthal case
Background
Kanthal is one of the few manufacturers in the world offers multiple products among the market and three divisions gain an advantageous position in market and substantial growth. It operates in a global competitive environment because it is manufacturing facilities and the target market both face to the global as exportation make up 95% of total sales. However, its sales growth slow in matured market like Europe and the USA while rapid growth can be seen in the developing countries. Under the traditional costing system, selling, marketing and administration costs were considered as fixed period costs which can not be used to manage profitability, therefore the new Kenthal 90 system was introduced into management which was based on Activity Based Costing (ABC).
Issues and problems
The Kanthal president, Ridderstrale, had the objective to find hidden profits and losses, which enable the company achieve additional growth without adding sales and administrative resources. This target could be realized by getting more accurate information about their manufacturing cost structure as well as the costs of supplying individual customers and orders. The reason why the new costs system is better than the previous one is that under the old system, the selling and administration costs were fixed and hence could not be changed to influence profitability. Furthermore, company failed to believe that customers with large sales volume are usually profitable customers under the previous costs system because resources are equally distributed among all products and customers.
The new Kanthal 90 system could determine how much of the expenses related to the volume of sales and production and how much related to handing individual production and sales orders. It separated the costs with stocked and non-stocked items, manufacturing costs were now associated with non-stocked item and left out of stocked items. Order and volume related costs were also treated as
Kanthal is one of the few manufacturers in the world offers multiple products among the market and three divisions gain an advantageous position in market and substantial growth. It operates in a global competitive environment because it is manufacturing facilities and the target market both face to the global as exportation make up 95% of total sales. However, its sales growth slow in matured market like Europe and the USA while rapid growth can be seen in the developing countries. Under the traditional costing system, selling, marketing and administration costs were considered as fixed period costs which can not be used to manage profitability, therefore the new Kenthal 90 system was introduced into management which was based on Activity Based Costing (ABC).
Issues and problems
The Kanthal president, Ridderstrale, had the objective to find hidden profits and losses, which enable the company achieve additional growth without adding sales and administrative resources. This target could be realized by getting more accurate information about their manufacturing cost structure as well as the costs of supplying individual customers and orders. The reason why the new costs system is better than the previous one is that under the old system, the selling and administration costs were fixed and hence could not be changed to influence profitability. Furthermore, company failed to believe that customers with large sales volume are usually profitable customers under the previous costs system because resources are equally distributed among all products and customers.
The new Kanthal 90 system could determine how much of the expenses related to the volume of sales and production and how much related to handing individual production and sales orders. It separated the costs with stocked and non-stocked items, manufacturing costs were now associated with non-stocked item and left out of stocked items. Order and volume related costs were also treated as