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Kanthal Abc

Kanthal case study :

The case of the Swedish company kanthal shows how important an efficient account management system is for a small company which has many costumers and would loose profit and profitability if it didn’t apply such a system.
Kanthal had many costumers and used to apply the same basis for estimating the costs for all products and orders. Administrative, sales and marketing costs were treated as a fraction of product cost indifferently from the product type and the order.
It seems after analyzing the fraction of each of the costs in the total product cost that overhead is not negligible and that the company cannot afford going on using the same account management system without an important loss of profitability. Or, at least, that the company could be much more profitable if an activity based costing was applied to reestimate the cost per product and per order (and therefore per costumer) and review the prices depending on the the type and volume of each order.
After analyzing the product costs for each costumer, it seems that the cost for some of the big costumers is higher than expected and that the profit margin is negative.
That shows that the old accounting system couldn’t show hidden costs. It didn’t take into account the variety of costumers.
The new method differentiates the overhead cost according to order and volume and allows estimating profitability precisely for each order.

Kanthal has different costumers with different needs: some of them make big quantity orders of standard products and others make small orders of very specific and non-standard products. With the old accounting system, overhead costs were the same for both types of products which leads the company to under estimate the total cost and therefore give a price that doesn’t optimize profit and profitability.
The activity based costing system allowed the company managers to estimate the profitability for each costumer and see where the company the company was...