Kanthal 90

Topics: Profit, Cost accounting Pages: 2 (472 words) Published: March 28, 2011
Kanthal is a Swedish company that specializes in production and sales of electrical resistance Heating elements. The 3 major divisions of Kanthal are 1) Kanthal Heating tech2) Kanthal furnace product3) Kanthal bimetals 95% of product sales was exported out of Sweden.

Ridderstrale , the president of Kanthal wanted to further consolidate the position of Kanthal. He found scope for improvement in the current account management system. He introduced Kanthal 90 plan, the basic motive of which was to increase profits without increasing administrative, production costs. Ridderstrale wanted to do this while maintaining the return on the capital employed at 20%.

Highlights of Kanthal 90
* Reallocation of Resources First step under Kanthal 90 was to reallocate the employees to obtain better returns. * Moving to profit oriented instead volume oriented - Biggest shortcoming of the current cost accounting was that the administrative cost and overheads were equally distributed among the customers in proportion to the percentage of gross sales. Administrative and selling costs and overheads were considered as fixed. These costs were considered period expenses. * Identifying hidden losses and hidden profits- Kanthal kept 20% of its products in inventory; orders had to be made for the remaining 80% which involved sales order costs. Therefore a customer who made more number of orders in a year would be less profitable than a customer who ordered same quantity in fewer numbers of orders. The orders from the latter had hidden profits involved whereas the former customer’s order could be considered as involving hidden losses.

Revelations of Kanthal 90
* The orders which would have appeared as profitable in the previous account management system now ranged from -179% to 60% in profit margin in Kanthal 90. * Kanthal made 250% of their profits from only 40% of the Swedish customers 5% of top customer brought 150% of overall profit rest of...
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