LEBANON GASKET COMPANY Case Solution And Analysis, HBR Case Study Solution & Analysis of Harvard Case Studies

LEBANON GASKET COMPANY Case Study Solution

The company is facing some operational inefficiencies which the new plant manager wants to reduce and wants to improve the performance of the company as the company’s performance is declining and have adverse results as the profits are declining. The company does not seem to have any improvement and there are internal disputes within the company and the departmental managers are blaming each other.

The income statement has calculated a huge profit which cannot be said to be true and the presentation of the income statement has changed which has led to huge decrease in profits as the allocation costs and other costs are not allocated according to the product costs.

The accounting has helped a lot to the managers in taking appropriate decisions by helping a lot in apportioning the costs thus the decision can be taken easily on the basis of results generated by the various reports produced.

INTRODUCTION

The company is facing operational inefficiencies in its operations and the company has hired a new plant manager in its TopekaKansas facility in January 2004. The plant manager has the experience of 24 years working as manufacturing engineer in big companies. The company had low performance and high variances were being reported in the budgets and the standard costing reports used by the company as its previous accounting system. There was a high material variance and the variance was increasing in every quarter which was an alarming situation for the company and combined with the material variance, the company had labor high variance and due to this, the company was experiencing operational inefficiencies which need to be rectified.

LEBANON GASKET COMPANY Harvard Case Solution & Analysis

The plant was suffering declining profit margins, excessive wastage, declining inventory levels, shrinking market share and an unsatisfactory on-time delivery performance. These are the current problems at the company and the major problem for the company is the unsatisfactory delivery as an unsatisfied customer will give a bad word of mouth to other people and this will further lead to a reduction in the sales revenue of the company.

Income statement using the value stream method

The income statement is produced using the value stream method and the result is that the company has a net profit of 432000. Using the cost plus accounting method, the net profit in the new method is around $361927 in March quarter, whereas the accounting profit under the value stream in June was 421851 and the new profit under the new accounting method is $1524409. This shows that under the new accounting method net profit is far more above the profit reported under the old method.

The value stream tells the company about how the company can see the product which is more profitable and the product which is more loss making in the two quarters.The comparison of two products in two different quarters can be made in this way and a control can be used to take an action which can lead to the rectification of the error and the company can further devise a strategy which it can use to solve the problem and the reason for declining profit margins can be established and the management can change the plans and goals accordingly for the company..............

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