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Kanthal

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With a small numbers of competitors in the industry, Kanthal is considered to be a world leading company who manufactures a various range of heating products; yielding approximately 20% return of capital and SEK 850 million sales revenues. Kanthal can be classified as a manufacturing-sector company. Currently, the company is a successful organisation who enjoys the decent economic condition and has expanded its business over the continents. Kanthal's main income generated from sales outside Sweden; 95% of sales revenue gained from export. However, to prevent the company from economic and financial uncertainty in the future, the president of Kanthal, was always eager to better the profitability and improve its account management system.
In the past, the main business strategy of Kanthal was to solely increase sales volume. The traditional cost of accounting system distributed resources equally, across every product, and customer base was treated homogeneously. As a result, there were substantial errors on cross-subsidisation and cost allocations, by which they created “hidden profit” and “hidden loss. An important fact that had to be taken into account was that the higher sale volume, the higher commissions and bonuses Kanthal had to pay to its employees. In other words, the more sales revenue the company generated, the higher administrative costs the company incurred. However these overheads costs, which accounted for 34% of cost structure, were treated as period cost. Hence, in daily operation, these costs are neglected, and the company would be unable to obtain the accurate accounting reports on daily basis. Possibly, the hidden loss was caused by some customer orders that appeared to be highly profitable, but actually created overhead and administrative costs that exceeded the gross margin. For these reasons, the president of Kanthal has implemented a new...

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