Kanthal Case Study SolutionsINTRODUCTIONKanthal is Comp Termpaper Essay Studies Test 1071194975

8/10/2019 Kanthal Case Study SolutionsINTRODUCTIONKanthal is Comp Termpaper Essay Studies Test 1071194975

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Kanthal Case Study Solutions

INTR!"CTIN#

Kanthal is com$any that s$eciali%es in the $roduction and sales of electrical resistance

heating elements. Kanthal has a&out '()((( customers and they $roduce a&out '*)(((

items. The com$any consists of three divisions and these three divisions are as follows#

'+Kanthal ,eating Technology - * glo&al market share

+Kanthal /urnace 0roducts - 1( glo&al market share

2+Kanthal 3imetals - 4anufacturer of one of the few fully integrated tem$eraturecontrol devices

4r. Ridderstrale) who &ecame the 0resident of the com$any in '56*) develo$ed andim$lemented a $lan that has involved com$letely changing and over-hauling their $re-

existing traditional cost system. The new $lan has &een installed with the ho$es that it

will $rovide more accurate information a&out their manufacturing cost structure) as well

as the costs of su$$lying individual customers and orders. 7ith this new information)Kanthal $lans to redirect its resources to customers with hidden $rofits and reduce efforts

that are focused on customers with hidden losses. The ultimate $ur$ose for this system

change is to achieve higher growth and $rofita&ility.

0R3894S) :NS79RS ; S8"TINS#


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ex$enditures related to sales volume and $roduction and how much related to handling

individual $roduction and sales orders. /our categories for cost allocation were lateresta&lished#

'+4anufacturing volume related costs+4anufacturing order related costs

2+S;: volume related costs

1+S;: order related costs

:lthough this system was much more rigorous) it made a good faith effort to assign the

various $roduction and S;: ex$enditures to customers and $roducts lines. The

de$artments ca$tured in this system were com$rehensive and were also generallyidentified as to who would have res$onsi&ilities for manufacturing costs.

Com$uting order and volume costs was a four-ste$ $rocess. /irst) S;: order costs werecom$uted &y dividing the total num&er of orders into total S;: costs ?refer to 9xhi&it 1 in

the case+. Second) the manufacturing order costs for non-stocked items was calculated

&y dividing total manufacturing order costs for non-stocked items &y the num&er of

orders for non-stocked $roducts. Non-stocked $roducts have additional costs associatedwith $rocessing orders that went a&ove and &eyond the costs associated with a stocked

$roduct. The third ste$ involved determining what the S;: allocation factor would &e

for calculating the S;: volume related costs. This allocation factor would then &ea$$lied to manufacturing C@S. The fourth and final ste$ involved the calculation of the

o$erating $rofit &ased on &acking out volume related costs from sales revenues followed

&y deducting S;: and manufacturing order costs from the resulting gross margin to arriveat a o$erating $rofit.


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Consider a $roduct line with *( gross margins ?after su&tracting volume-related

ex$enses from $rices+. The cost for handling an individual customer order is S9K A*()

and the extra cost to handle a $roduction order for a non-stocked item is S9K )*(.a+. Com$are the o$erating $rofits and $rofit margins of two small orders) &oth for S9K

)(((. ne order is for a stocked item) and the other order is for a non-stocked item.

&+.Com$are the o$erating $rofits and $rofit margins for two large customers.Customers : ; 3 &oth $urchased S9K 'B()((( worth of $roducts this year.

Customer : $laced ust three orders) for three different non-stocked items.

Customer 3 $laced 6 orders) B for stocked items and for non-stocked items.:nswer 2#

The calculations used for this $ro&lem ?large and small customers+ may &e found in

9xhi&it :. 0art ?:+ shows the calculations for a small customer who $laces an order for a

stocked item and a non-stocked item. :ll associated costs concerning the $rocessing ofan order for a non-stocked item are su&stantial. They have created a loss situation. /or

the order of a stocked item) the charges associated with a non-stocked item are not

$resent and an o$erating $rofit is generated.

The large customer order has a trend that is similar. Its im$act on the final figure is not as

severe as the result of the larger order. :lso) &ecause of the *( gross margin$ercentage) Customer : shows an o$erating $rofit of S9K A')((( ?11+) while Customer

3 shows an o$erating $rofit of S9K 5)*(( ?B+.

The num&er of non-stocked items $rocessed will indeed im$act the o$erating $rofits

su&stantially. rdering costs related to &oth S;: and manufacturing are incurred on &oth

orders.

s $rofita&ility.

CNC8"SIN#


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Kanthal should take measures to minimi%e costs that are associated with the non-stocked

items. The case does not show any evidence of Kanthal attem$ting to reduce costactivities. If the com$any could successfully reduce costs) this would lead to an

im$roved o$erating $rofit margin related to stocked items. :lso) Kanthal needs to focus

their sales on the $ercent $rofit margin or the true &ottom line contri&ution of each orderto the com$any.

Keywords#

kanthal case study solutions introduction kanthal com$any that s$eciali%es $roductionsales electrical resistance heating elements kanthal a&out customers they $roduce a&out

items com$any consists three divisions these three divisions follows heating technologyglo&al market share furnace $roducts glo&al market share &imetals manufacturer fully

integrated tem$erature control devices ridderstrale &ecame $resident com$any develo$ed

im$lemented $lan that involved com$letely changing over hauling their existingtraditional cost system $lan &een installed with ho$es that will $rovide more accurate

information a&out their manufacturing cost structure well costs su$$lying individual

customers orders with this information $lans redirect resources customers with hidden

$rofits reduce efforts focused hidden losses ultimate $ur$ose this system change achievehigher growth $rofita&ility $ro&lems answers solutions Euestion have selling

administrative costs traditionally &een traced individual $roducts answer under costs

system management felt selling administration were fixed result they could changedmani$ulated utili%ed influence growth $rofita&ility traditionally considered ex$enditures

$eriod were ex$ensed manner rather than allocating them various $roduct lines under

management failed reali%e some their $laced heavy demands organi%ation while otherstherefore attem$ts were made allocate $roduct lines result s$read evenly focus sales force

volume rather than $ercent $rofit margin true &ottom line contri&ution each order

Euestion evaluate a$$roach taken com$ute $rofit individual orderliness including

assigning each customer order customer orders $roducing stocked items estimated answerinvented a$$roach cost allocations instead treating ex$enditures $eriod derived

methodology allocating these where they a$$lica&le financial managers solicited

information from various de$artments organi%ation nature activities each de$artmentallocation method constructed &ased received allowed management ca$ture either work

either order related volume related these $rimary drivers manufacturing ex$enditures

after discussing everything different de$artment heads would then determine muchde$artments related sales volume $roduction much handling $roduction orders four

categories allocation later esta&lished manufacturing although this much more rigorous

made good faith effort assign various $roducts lines de$artments ca$tured com$rehensive

also generally identified would have res$onsi&ilities com$uting four ste$ $rocess first


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com$uted dividing total num&er into total refer exhi&it case second stocked items

calculated dividing total stocked num&er have additional associated $rocessing went

a&ove &eyond associated $roduct third ste$ involved determining what allocation factorwould calculating factor then a$$lied cogs fourth final ste$ involved calculation

o$erating $rofit &ased &acking from revenues followed deducting from resulting gross

margin arrive o$erating Euestion consider line gross margins after su&tracting ex$enses$rices handling customer extra handle item com$are o$erating $rofits margins small &oth

item other item com$are $rofits margins large &oth $urchased worth year $laced ust

three different $laced answer calculations used $ro&lem large small found exhi&it $artshows calculations small $laces associated concerning $rocessing su&stantial created loss

situation charges $resent generated large trend similar im$act final figure severe result

larger also &ecause gross margin $ercentage shows while shows num&er $rocessed will

indeed im$act su&stantially ordering &oth incurred what should ridderstrale un$rofita&lerevealed account should sales$ersons allowed acce$t un$rofita&le should concentrate

selling high $urchase efforts made &oost move away under assum$tion $rices will held

constant necessarily decline rather charge healthy $remium them charging higher $rices

allows im$ortant im$ortance o$erations continue $urchase $remium adust o$erationsaccommodate other hand could decide $urchase another su$$lier definitely negative

effect $rofita&ility conclusion take measures minimi%e case does show evidenceattem$ting reduce activities could successfully reduce lead im$roved also needs focus

$ercent true &ottom line contri&ution

Keywords @eneral#

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Kanthal Case Study SolutionsINTRODUCTIONKanthal is Comp Termpaper Essay Studies Test 1071194975