Profit and Account Management

891 words 4 pages
1. What was the Kanthal president, Ridderstråle, attempting to accomplish with the Account Management System? Are these sensible goals?

Ridderstrale had the objective to find hidden profits and losses contained in their current accounting system. The old system did not fully disclose how their costs were applied to the sales accounts. The goals are very sensible as they will allow them to move forward with the proper information.

2. Why did Ridderstråle feel that the previous cost system was inadequate for the new strategy?

The new strategy/system was needed “to promote high-margin products to high-profit customers.” The old system didn’t work well because it applied S&A expenses as a percentage of sales revenue and
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| Customer A | Customer B | purchases | $ 160,000.00 | $ 160,000.00 | profit margin | $ 80,000.00 | $ 80,000.00 | stocked orders | | $ 6.00 | non-stocked orders | $ 3.00 | $ 22.00 | stocked expense | | $ 4,500.00 | non-stocked expense | $ 6,750.00 | $ 49,500.00 | Profit/Loss | $ 73,250.00 | $ 26,000.00 | | | | Stocked Rate | $ 750.00 | | Non-stocked Rate | $ 2,250.00 | |

5. What can Kanthal management learn from information like that found in Exhibits 6 -9?

* Profit/Loss per order and customer * Profit/Loss per customer * Margin per order * Margin per customer * Cost Allocations * How stocked/non-stocked items affect costs

c. Explain the calculation of customer operating profit and profit margin in Exhibits 6 and 7. As a Kanthal manager, what would you do with the customer information in these exhibits?

Knowing the operating profits I would use this information to evaluate the value of each customer. I would use the information to provide better forecasting because we know the effect of higher orders on non-stocked items.

d. As a Kanthal manager, what conclusions can you draw from Exhibits 8 and 9, and what actions would you take based on this information? Specifically, what would you do about the

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