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Lehigh Steel Case Solution & Answer

Lehigh Steel Case Solution 

Quantitative Analysis

Standard costing

On the basis of the principles of the standard costing, only Alloy product is profitable. However, under this system the total profitability of the business is negative which is not satisfying the current objectives of achieving profitability and lean operation management.

Alloy: Conversion: Die Steel: Die Steel: High Speed:
Standard Cost ($ / lb) Condition Roller Wire Chipper Round Bar Machine Coil
Price $2.31 $0.77 $1.02 $0.93 $2.33

ABC Costing

It is expected that the implementation of the ABC costing system would help the company in improving business operationsby identifying the non-value adding activities, however it fails to implement the lean management system and under this system, the total revenue of the business is more negative as compared to the standard costing system.(Ildikó Réka CARDOŞ, n.d)

 TOC   

It is expected that the implementation of the TOC system will help the company to identify the products which are using minimum resources along with generating maximum contribution.(Zeynep Tuğçe Şimşit, 2014)

It could also help by setting greater pace for the entire operations, and will also help by prioritizing the products with maximum contribution, so that the management of the company will give more attention to the products which will improve the profitability of the company.(Kevin J. Watson, 12 June 2006)

Recommendation

The main purpose of the management of the company is to transform the losses of the business into earnings as the economic downturn would affectthe business operations and financial stability of the company adversely. It is expected that the removal of the non-value adding activities and the allocation of the resources to the products, which are generating greater contribution, could help the company with this respect.

Therefore, a single model could help completely and the management of the company should implement the ABC model along with the TOC model as applying both models will help the company to identify the activities which are value adding and non-value adding as well as itwill also help the company to identifying the products, which will generate greater return as compared to the products which are generating lower return along with utilizing the greater resources. Both models are also supporting the Roller wire while standard costing method was supporting the production of the Alloy, therefore it is recommended that the management of the company should implement both models together as it will help the company by prioritizing the production of Roller Wire and then the production of the Alloy because it will help to achieve lean production system along with generating positive returns…………….

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