Lynchburg Company Case

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LYNCNBURG FOUNDRY The materials manager for Lynchburg Foundary was faced with the decision of whether he should ship ductile iron return from the ductile iron castings plants at Lynchburg and Archer Creek to the pipe-making plant at Radford, Virginia. A decision to ship the ductile iron return would be complex and would involve determining the appropriate value of the maaterial as well as a creating a transfer pricing system. In addition, the effect of changing inventory values for this material and the resulting implications for the financial statements and investment decicions could be a potential problem. Founded in 1896 as the Lynchburg Plow Company, manufacturing gray iron plows and plow replacement parts, the company grew and diversified, producing cast iron pipe, and changed its name to Lynchburg Foundry Company in the early 1900s. With the 1948 discovery of ductile iron, a new form of cast iron with properties similar to steel, the company began to take its present form as a major producer of gray and ductile iron precision castings and pipe. The precision castings were produced for cars, compressors, construction equipment, trucks and farm equipment. The pipe was produced primarily for munipal water systems. In 1976, the company employed over 4000 employees at manufacturing facilities in three locations in Virginia. The casting process: Lynchburg and Archer Creek Plants A casting was made by pouring molten metal into a sand mold of the desired shaped. Once the metal, leaving a casting. There were four steps in making a casting: melting and allowing the metal, making molds and cores. Melting and Alloying The raw matterials were received by rail car in the iron yard behind the plant. The raw materials included coke for melting fuel, limestone to promote the coagulation of slag or impurities, pig iron for carbon and silicon, and steel scrap for the iron

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