kanthal case
Background
Kanthal is a an Swedish company which is specializes in productions and sales of electrical resistance heating elements. The company produced 15000 items to about 10000 customers. Most of the sales revenue are come from outside of Sweden, about 95% in total revenue. There are three divisions in the company :
1. Kanthal Heating Technology, generate 25% global market share.
2. Kanthal Furnace Products, generate 40% global market share
3. Kanthal Bimetals, one of the few manufacture that fully integrated temperature control devices
Kanthal had been successful in the past, they used its traditional accounting management system to cost is product. In 1985, when Ridderstrale was appointed to the president of the company, he developed the Kanthal 90 plan to increase the overall profitability. In order to achieve the new plan, a new accounting system is needed. The new strategy use Activity Based Costing(ABC) model, which classified the cost into 2 groups: Order- related and Volume costs.
Problem and Issue
Kanthal has a large group of customers and products, the needs for different customers are diverse from each other and the cost for each orders are variable
The old accounting system was inadequate for the new strategy because it distribute resource equally across all product and customer. They do not measure an individual customer’s profitability and the real cost associated with their orders. Because of the way that all resources were equally distributed in the old accounting system, it shows that two customers were equally profitable on the gross margin level. However ,in the reality, the company may have hidden loss or hidden profits. A hidden loss customer is one with low profitability, a hidden profit customer is one with high profitability.
Besides, the old system record Selling & Administrative (S&A) , production overhead as fixed cost, as a result they could not be changed or influence the profitability. However,
Kanthal is a an Swedish company which is specializes in productions and sales of electrical resistance heating elements. The company produced 15000 items to about 10000 customers. Most of the sales revenue are come from outside of Sweden, about 95% in total revenue. There are three divisions in the company :
1. Kanthal Heating Technology, generate 25% global market share.
2. Kanthal Furnace Products, generate 40% global market share
3. Kanthal Bimetals, one of the few manufacture that fully integrated temperature control devices
Kanthal had been successful in the past, they used its traditional accounting management system to cost is product. In 1985, when Ridderstrale was appointed to the president of the company, he developed the Kanthal 90 plan to increase the overall profitability. In order to achieve the new plan, a new accounting system is needed. The new strategy use Activity Based Costing(ABC) model, which classified the cost into 2 groups: Order- related and Volume costs.
Problem and Issue
Kanthal has a large group of customers and products, the needs for different customers are diverse from each other and the cost for each orders are variable
The old accounting system was inadequate for the new strategy because it distribute resource equally across all product and customer. They do not measure an individual customer’s profitability and the real cost associated with their orders. Because of the way that all resources were equally distributed in the old accounting system, it shows that two customers were equally profitable on the gross margin level. However ,in the reality, the company may have hidden loss or hidden profits. A hidden loss customer is one with low profitability, a hidden profit customer is one with high profitability.
Besides, the old system record Selling & Administrative (S&A) , production overhead as fixed cost, as a result they could not be changed or influence the profitability. However,