Kansas City Works

675 Words3 Pages
1.0 Introduction
Armco Inc. is a steel manufacturer that used to be the sixth largest in its industry in US (in 1990). The Kansas City Works within its Midwestern Steel Division was hit by the decline in the business in the US steel industry despite its good performance in the past. Consequently, it downsized and incurred significant losses in most of the 1980s. This entity produces two primary products including grinding media and carbon wire rod, one being recognized in the industry for its durability while the later being non profitable and only covering some of its fixed costs through volume.
2.0 What’s wrong with the old system?
(a) Inconsistency with organization’s strategy
The Objective of Armco Inc. is maximizing profits and
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These costs were shown as “S-Order” costs on the Operating Statistics Report.
The old system wasn’t working. People were relying on something that was not adequate.
The cost part of old performance measurement system was built for accountants. It was designed to produce financial statements, operating reports, and produce cost reports. One system can’t do all these things well.
Finance department spending 60% of their time in accounting on the non-value-added chores of inventory valuation for financial reporting purposes.
(d) Unfair performance evaluation
The Operating reports include those costs that are not controllable by the individual operating manager. They would be distorted by volume changes. This means that production managers are cost center managers, held accountable for all costs incurred in or allocated to their respective areas so. It would be difficult to evaluate manager’s performance when the numbers were distorted by uncontrollable factors.
Managerial performance report, also known as control report is used to make comparison of actual performance with some standard such as a budget. It forcuses on how well the manager performed during the period. It differes from economic performance report because
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