Lehigh Steel Case Analysis
Executive Summary
Lehigh Steel is a manufacturer of speciality steels for high strength, high use applications. Its financial performance has generally trended wit but outperformed the industry as a whole.
Following the general recessionary trend of the market, Lehigh Steel reported record losses in 1991 after posting record profits in 1988. This had led to an increasing need to rationalizing Lehigh Steel’s product mix.
Traditionally, Lehigh Steel has followed Standard Cost Method for cost accounting. Jack Clark, CFO of Lehigh Steel has given Bob Hall the task of implementing Activity Based Costing at Lehigh Steel. Mark Edwards, Director of Operations and MIS explored the implementation of Theory of Constrains (TOC) accounting for Lehigh Steel.
The task is to evaluate the best costing alternative for Lehigh steel. For this, an improvised costing system is developed which overcomes the assumptions of ABC and TOC costing and the optimum product mix for Lehigh Steel is calculated using the same.
Situation Analysis
Company Analysis
Founded in 1913, Lehigh Steel enjoyed a niche position as a manufacturer of speciality steels for high strength, high use applications. Products included high-speed, tool and die, structural, high temperature, corrosion-resistant and bearing steels, available in a wide range of grades in a variety of shapes and finishes. Its markets included aerospace, tooling, medical, energy and other performance industries. Lehigh Steel’s premium market position came from its superior ability to integrate clean materials with precision processing to produce high quality products which were often customized for specific applications, and bundled with metallurgy and other technical services. It also operated a small distribution division which served certain market segments by offering a broad product line comprising of products from multiple manufacturers.
Lehigh Steel was acquired by The Palmer Company in 1975. The Palmer Company was a global
Lehigh Steel is a manufacturer of speciality steels for high strength, high use applications. Its financial performance has generally trended wit but outperformed the industry as a whole.
Following the general recessionary trend of the market, Lehigh Steel reported record losses in 1991 after posting record profits in 1988. This had led to an increasing need to rationalizing Lehigh Steel’s product mix.
Traditionally, Lehigh Steel has followed Standard Cost Method for cost accounting. Jack Clark, CFO of Lehigh Steel has given Bob Hall the task of implementing Activity Based Costing at Lehigh Steel. Mark Edwards, Director of Operations and MIS explored the implementation of Theory of Constrains (TOC) accounting for Lehigh Steel.
The task is to evaluate the best costing alternative for Lehigh steel. For this, an improvised costing system is developed which overcomes the assumptions of ABC and TOC costing and the optimum product mix for Lehigh Steel is calculated using the same.
Situation Analysis
Company Analysis
Founded in 1913, Lehigh Steel enjoyed a niche position as a manufacturer of speciality steels for high strength, high use applications. Products included high-speed, tool and die, structural, high temperature, corrosion-resistant and bearing steels, available in a wide range of grades in a variety of shapes and finishes. Its markets included aerospace, tooling, medical, energy and other performance industries. Lehigh Steel’s premium market position came from its superior ability to integrate clean materials with precision processing to produce high quality products which were often customized for specific applications, and bundled with metallurgy and other technical services. It also operated a small distribution division which served certain market segments by offering a broad product line comprising of products from multiple manufacturers.
Lehigh Steel was acquired by The Palmer Company in 1975. The Palmer Company was a global
References: 1) “Cost Accounting: A Managerial Emphasis”, Horngen, Datar, Foster, Rajan and Ittner, Thirteen Edition 2) A comparative analysis of utilizing activity-based costing and the theory of constraints for making product-mix decisions, Robert Kee, Charles Schmidt, Int. J. Production Economics 63 (2000) 1}17