Lehigh Steel

Harvard Business School Case: 9-198-085

Instructor
Prof. K. M. Padmanabhan
12/16/2011

Submitted By
Section E, Group 8 Aravind Ganesan 2011PGP448 Gadkhel Rohit 2011PGP629 Gokulnath R 2011PGP638 Kartik Shrivastava 2011PGP685 Sumit Prakash 2011PGP907 Upasana Mukherjee 2011PGP922 Vemb V 2011PGP932

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

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