1. Key Issues and General ScenarioGeneral Scenario: Kanthal is a successful and profitable company that is a world market leader in many of the products it produces. However, its new president believes the company needs a new strategy that provides it with a way to further increase profits but without increasing costs. The new president believes that the key to the new strategy is being able to understand the true nature (i.e. costs) of customers and orders. He believes that if the company can tie customer costs accurately, it will allow the company to better focus on greater profitability. Key issues: Understanding the company's cost structure. Allocate costs by customer and by order basis.Implement a new cost system that will support the new cost allocation methodology.Improve decision making on customers and sales orders based on the information provided by the new system.2. Questions about the case2.1. What was the president trying to accomplish? Basically, the president was trying to make the transition from a traditional cost accounting system to a new ABC accounting system. This is in order to identify what the real costs of each customer and each order are, allowing the company to fully understand its cost structure thus providing the basis for better business choices (and greater profitability). These are really very sensible goals. Even if the company is profitable, implementing a new activity-based cost accounting system will allow the company to improve its margins and become even more focused and competitive in the future.2.2. Why was the old system inadequate? The old system was inadequate for the following reasons:......half the paper......production costs to improve efficiencyIf all else fails, increase prices to the point where the contribution the margin is positive or eliminates the customer.3. Management Implications and Limitations of the Analysis Management Implications: Moving from a traditional cost accounting system to ABC can reveal hidden costs and hidden profits based on identified activities (e.g. customers, orders, etc.). Treating overhead costs as "fixed" can cause an unfair and highly misleading distribution of overhead costs that are actually variable. Limitations of the analysis: Inventory issues are not addressed. Which items should be kept in inventory, at what levels, for how long in advance, etc. Production efficiency levels are not addressed. Overall efficiency and cost effectiveness at the production level, bottlenecks, material consumption, etc.