Steel Product
Mild_tutorExhibit 4 Sample Product Data
| Alloy: | Conversion: | Die Steel: | Die Steel: | High Speed: |
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| Condition | Chipper |
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| Roller Wire | Round Bar | Machine Coil |
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| Round | Knife |
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Production (lbs) | 478,679 | 2,081,543 | 2,413,299 | 6,697,682 | 2,530,552 |
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Number of skus | 311 | 473 | 418 | 172 | 102 |
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Number of orders | 957 | 4,163 | 3,218 | 3,349 | 1,012 |
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Bill of Materials (lbs / lb of output) |
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Steel scrap | 1.00 | 0.00 | 1.00 | 1.00 | 1.00 |
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Alloys | 0.01 | 0.00 | 0.01 | 0.01 | 0.01 |
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| (@ $48.29 / lb) |
| (@ $6.29 / lb) | (@ $15.29 / lb) | (@ $152.29 / lb) |
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Machine Time (min / lb; crew = 1) |
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Melting (Electric Arc Furnace) | 0.20 | 0.00 | 0.09 | 0.09 | 0.09 |
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Refining (VOD) | 0.21 | 0.00 | 0.10 | 0.10 | 0.10 |
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Molding / Breakdown (Ingot / PFF) | 0.12 | 0.00 | 0.07 | 0.08 | 0.07 |
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Rolling (CRM) | 0.10 | 0.15 | 0.33 | 0.09 | 0.03 |
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Finishing (multiple) | 0.06 | 0.02 | 0.07 | 0.08 | 0.05 |
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Total time | 0.69 | 0.17 | 0.66 | 0.44 | 0.34 |
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Exhibit 5 Standard Cost Results
| Alloy: | Conversion: | Die Steel: | Die Steel: | High Speed: |
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Standard Cost ($ / lb) | Condition | Chipper |
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Roller Wire | Round Bar | Machine Coil |
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| Round | Knife |
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|
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Price | $2.31 | $0.77 | $1.02 | $0.93 | $2.33 |
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Materials | $0.54 | $0.00 | $0.12 | $0.21 | $1.58 |
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Direct labor | $0.29 | $0.07 | $0.28 | $0.18 | $0.14 |
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Direct manufacturing expense | $0.24 | $0.06 | $0.23 | $0.16 | $0.12 |
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Contribution margin | $1.24 | $0.64 | $0.39 | $0.38 | $0.49 |
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Contribution margin (%) | 53.7% | 83.1% | 38.2% | 40.9% | 21.0% |
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Total contribution | $593,562 | $1,332,188 | $941,187 | $2,545,119 | $1,239,970 |
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Manufacturing & administrative | $0.64 | $0.64 | $0.64 | $0.64 | $0.64 |
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overhead |
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Operating profit | $0.60 | $0.00 | ($0.25) | ($0.26) | ($0.15) |
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Operating profit (%) | 26.0% | 0.0% | -24.5% | -28.0% | -6.4% |
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Total operating profit | $287,207 | $0 | ($603,325) | ($1,741,397) | ($379,583) |
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Exhibit 6 Lehigh Activity Cost Pools
Activity | Driver | Driver | Amount |
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Volume |
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Melting: Depreciation | melt machine minutes | 5,145,632 | $2,139,865 |
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Melting: Maintenance | melt machine minutes | 5,145,632 | $975,130 |
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Melting: Utilities | melt machine minutes | 5,145,632 | $2,036,477 |
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Refining: Depreciation | refine machine minutes | 5,691,042 | $1,711,892 |
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Refining: Maintenance | refine machine minutes | 5,691,042 | $780,104 |
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Refining: Utilities | refine machine minutes | 5,691,042 | $1,745,551 |
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Molding: Depreciation | mold machine minutes | 4,226,965 | $427,973 |
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Molding: Maintenance | mold machine minutes | 4,226,965 | $390,052 |
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Molding: Utilities | mold machine minutes | 4,226,965 | $290,925 |
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Rolling: Depreciation | roll machine minutes | 8,258,382 | $2,995,811 |
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Rolling: Maintenance | roll machine minutes | 8,258,382 | $975,130 |
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Rolling: Utilities | roll machine minutes | 8,258,382 | $872,776 |
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Finishing: Depreciation | finish machine minutes | 4,057,311 | $1,283,919 |
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Finishing: Maintenance | finish machine minutes | 4,057,311 | $780,104 |
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Finishing: Utilities | finish machine minutes | 4,057,311 | $872,776 |
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General & Administrative | pounds | 50,299,420 | $5,400,955 |
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Material Handling & Setup* | orders | 57,147 | $4,936,068 |
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Order Processing | orders | 57,147 | $3,953,709 |
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Production Planning | orders | 57,147 | $3,339,500 |
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Technical Support | skus | 6,642 | $5,766,579 |
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Total |
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| $41,675,296 |
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1. For each of the five sample products, compute the profitability per pound under the ABC system at Lehigh.
2. For each of the five sample products, compute the profitability per pound per unit of the constraint under the TOC approach implemented at Lehigh.
3. Critique the ABC and TOC approaches with respect to determining Lehigh’s optimal product mix. Which costing system/perspective should Lehigh use to determine its product mix? Devise an alternative method of calculating profits that combines the insights/assumptions of ABC and TOC in a way that is appropriate for Lehigh’s business situation while eliminating those insights/assumptions that are inappropriate in the current situation.
4. Compute the profits for the five sample products under the new method you advocate in #3.
9 years ago
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