Cost Accounting
The competitive environment
Firstly, Kanthal operates in a global competitive environment. Kanthal’s manufacturing facilities and the target markets both face to the global, the exportation made up 95% of the total.
Furthermore, Kanthal offers multiple products (nearly 15000 items) among this market and three Kanthal divisions gain an advantageous position in market and generate substantial growth. More specifically, from 1985 to 1987, Kanthal Heating technology accounted for 25% global heating alloys market share; Furnace made up 40%;Kanthal Bimetals was the manufacturer of one of few fully integrated temperature control devices over the world.
However, it is noticed that sales growth of furnace products in matured market, like Europe and the USA was slow, meanwhile rapid growth can be seen in the Far East and Latin America.
How the old cost system operates?
Under the old costing system, total cost is divided into six cost components, Each of them is treated as a percentage of sales revenue.
Indirect manufacturing costs are allocated to products based on direct labour, while selling and Genaral&Administrative costs, production overhead are regarded as fixed and are took into period expenses, they are not changed and can’t be allocated to the various consumers and products .However, Ridderstrate deemed that the old costing system ignores the fact that all costs are variable.
The calculation of profit under the old system is based on a gross margin basis. The amount of selling price go beyond the standard full cost of manufacturing plus the percentage mark-up for general , selling, and administrative expense is profit. That is just emphasis on volume.
To sum up, the old Kanthal costing system allocates resources equally across all products and customers.„
The opportunity face by Kanthal in relation to reducing batch cost
Batch cost means the cost generated by producing a set of amount products; it is usually relevant to the machine setup costs, materials, quality inspection and transportation costs.
The strategy for reducing the batch cost could involve two main ways. One is simply decline the relevant costs, such as material, machine setting up cost, transporting costs and quality inspection costs. The feasible approaches could be using the cheaper substitute materials or searching