Analysis of Mueller-Lehmkuhl GmbH - Case Study Example

The Mueller-Lehmkuhl production process for instance consists of machining and tooling departments which are mainly set aside for producing attaching machines. The other step involves prototyping and designing for the attaching machines. Additionally, there is a purchase of the required parts consisting of engines and motors which are cast to the specifications according to a local iron casting enterprise. The next step involves wielding followed by the process of assembling. Testing is also very crucial as it sets apart value-added products from the non-value-added products before they are sold.

The fastener production process is characterized by three core steps that include-stamping, assembly, and finishing. The existing cost system can be referred to as activity-based costing or ABC which uses a number of mixes of volume-based activities and other activities that are non-volume based. The activity-based costing takes into account the fact that there are changes in technology and production methods and that there is a high rate of new products emerging into the market that has resulted in a change in overheads like IT and quality control.

The ABC approach is able to allocate these overheads in a more accurate manner by classifying overheads into groups that are influenced by homogenous activities. The groups are called cost pools while the activities that drive the costs are known as cost drivers. Activity-based costing is therefore a more appropriate allocation method because overheads are only attached a single activity only when they are related, unlike conventional overhead absorption where all recovery methods are volume-based which is erroneous (Walkers 6).

I would advise the business to adopt a mix of the two strategies in order to gain a competitive edge over the Japanese firm. I would adopt the loss leaders' price mechanism which is a sales promotion technique that entails the firm pricing its product(s) below the cost price in order to entice more customers to the firm’s stores or its online presence.