Elkay Plumbing Products Division Essay

1251 Words Oct 6th, 2015 6 Pages
Summary:
Background: Elkay was the American largest manufacturer of stainless steel residential sinks which extended its scope into various kinds of products with only a few competitors. Its Plumbing Products Division produced different level and priced sinks in three plants separately based on different process requirements and characters of products and further invented itself to become the industry’s innovator. Elkay’s main market included North America and selected international markets. In 2007, Elkay’s main outlet market begun to collapse; prices of raw materials increased sharply; Chinese competitors began to encroach on its low-end and threaten its relationships with key customers together with its pricing pressure from retailers
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Though improving its accuracy to some extent, it didn’t re-measure its practical capacity by taking market changes and production efficiency changes into considerations. Leaving some problem still unsolved. Therefore, analyzing customer profitability within this system would be meaningless as before.
Analysis: Fierce market competition forced companies to produce new products, enhance service-quality and carry out marketing activities to attract customers. Different requirements from different customers consumed resources in different ways and contributed different profits to the company. Thus, managers needed precise information about product costs and customer P&Ls to make economic decisions. In the past, Elkay adopted the standard costing system which indeed provided nothing useful for managers about actual product costs nor customer profitability for the following reasons: This standard costing system simply ignored its products diversity. Though it produced different products in different plants, by pooled all costs together and average allocated based on volume bases, this cost system neither distinguish indirect costs between different products nor reflected its actual resources consumed by different orders, for example, R&D costs for high-volume low-priced commodity sinks and low-volume customized sinks and equipment costs which only some specific customers and orders. “Products differ in the demands they place

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