The Manufacturing Of Specialty Steels Essay

1530 WordsOct 24, 20167 Pages
Background Lehigh steel is a company which is involved in the manufacturing of specialty steels, which is used for high strength and high use applications. The steel manufactured by them, can be acquired in a variety of grades shapes and sizes. The demand in the steel industry is cyclic in nature and a large amount of costs are fixed. The company uses the standard costing system for calculating the cost of their products. The recession in 1991, caused a huge fall in the demand which had caused the company to incur a great loss. However, after the recession the company was not able to increases their profits. Therefore the company had the decided to adopt an alternate costing system, the ABC costing system and rationalize their product mix. Bob Hall was hired by the company to implement this costing system. Problems • The profitability of the company began to decline. • The costing system used by the company was inadequate . Issues • The recession in 1991 had caused the company to suffer severe losses. • The company had only one CRM machine that consumed a large amount of time and resources. • The market prices of the products had fallen but the costs of making the products had not declined. • The company had faced a decline in the average order size and also in shortening its lead time, which left the company with excess inventory and costs. • The company used the standard costing system and due the high complexity of the products, the product cost was inaccurate. The

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