Discussion Questions: Mueller-Lehmkuhl GmbH
Assignment Questions: Answer Question 3 and 4.
1. Describe the competitive environment facing ML at the time of the case.
2. Describe how the existing cost system works. Include in your discussion the products
costed and the classification and assignment of overhead to these products. (Note: A
flowchart or other diagram is often a useful way to trace costs through the cost system
as well as the flow of resources through the production system.)
3. How much profit does ML make on the sale of fasteners? How much profit does ML
make on the sale and rental of attaching machines? (Note: This question requires
the use of some assumptions. There is no one “right” answer. Make your
assumptions explicit and, to the extent possible, use the facts in the case. Also,
where appropriate, indicate what additional information would you like before
giving a definitive answer.)
4. Exhibit 9 shows the reported product costs for five representative products. Based on
the product line revenues and costs calculated in question 3, how would you revise
these product line costs to make them more “accurate?” (Note: This question also
requires the use of some assumptions. Make your assumptions explicit and, to
the extent possible, use the facts in the case. Also, where appropriate, indicate
what additional information would you like before giving a definitive answer.)
5. Discuss the current mix of fastener sales (ignoring machine sales and rentals) (a)
given the costs generated by the existing cost system, and, (b) using the “revised”
estimates prepared by you in question 4.
6. Consider now both machine sales and rentals as well as fastener sales. How would
you change the firm’s pricing strategy to compete better with the Japanese? What are
some of the important issues you would want to consider before you implemented
7. ML currently use what might be called a “traditional” product costing system. If you
were asked to recommend changes to the cost system, what would they be? You
should document the factors that you used in making your recommendations.