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1. Why Would Any Customer, Let Alone Large Advertising Agencies And Departmental Stores, Go To Colorscope Rather Than Go To The Large Printers Listed In Exhibit 3?

1649 words - 7 pages

Seyhun Shikhaliyev
CASE STUDY
COLORSCOPE

1. Why would any customer, let alone large advertising agencies and departmental stores, go to Colorscope rather than go to the large printers listed in Exhibit 3?

The main line from the colorscope inc background are the corporate was found in march 1976, the first target customers is local customers (small agencies), and after that colorscope growth significantly that thing can be proved in 1988 sales colorscope over than USD 5 Milion and they served Big Customer, since growth they invest capital expenditure in order to improve services. In 1990 when the overall technology growth rapidly and there are more competitor than before, this ...view middle of the document...

82 | 1.00 | 6.67% |
26.23% | $100.38 | 1.00 | 6.67% |
52.46% | $72.26 | 4.00 | 26.67% |
8.20% | $148.20 | 2.00 | 13.33% |
6.56% | $86.32 | 500 | 3.33% |
  |   | 6.50 | 43.33% |
100% | $92.21 | 15.00 | 100.00% |
| | |

3. What you have done above is a "full-cost" analysis. This is in contrast to a "direct-cost" analysis that ignores overhead costs. Is full cost the right metric for job profitability and customer profitability? What assumptions are we making about the variability of overhead costs when we do a "full-cost" analysis.

The two stage method is always used in Activity-Based Costing, which assigns resource costs to cost objects base on separate activities. In stage one, the total overhead costs are allocated to the separate activities base on different resource drivers. In stage two, the costs of activities are allocated to each cost object base on cost drivers.
In this case, because the wages and depreciation costs can be traced directly to each workstation, we only need to allocate the rent and other indirect costs to the five workstations. In stage two, we have to assign the overhead cost of each workstation to each job base on the labor hours that each job consumed.
Table 1: Stage One: The total overhead allocation to different workstations
Job Preparation Scanning Assembly Output Quality
Control Idle Total
Wages $ 8,000 $ 32,000 $ 64,000 $ 10,000 $ 11,000 $ 125,000
Depreciate 500 25,000 $ 10,000 14,000 500 50,000
Rent 2,000 2,000 8,000 4,000 1,000 13,000 30,000
Others 1,311.5 5,246 10,492 1,639 1,311.5 20,000
Total Overhead 11,811.5 64,246 92,492 29,639 13,811.5 13,000 225,000
Allocation rate $ 73.82 $ 100.38 $ 72.26 $ 148.20 $ 86.32
In table 1, we allocate the total overhead costs to different workstations. Because the labor hours of each workstation are available in this case, we can use the labor hours as the cost drive to assign the overhead of each workstation to each job. The overhead cost per labor hour is the rate that we use to allocate the indirect cost.
Table 2: Stage two: Overhead costs assignment to Job 61001
Job 61001 Job Preparation Scanning Assembly Output Quality Control Total
Labor hours 4 32 42 8 7 93
Overhead costs $ 295 $ 3,212 $ 3,035 $ 1,186 $ 604 $ 8,332
In the table 2, we use the labor hours consumed in Job 61001 to compute the overhead cost that assigned to this cost object. The overhead cost of Job 61001 is $8,332, and the total material expense of Job 61001 in Exhibit 12 is $5,400, which includes material cost of $2,700 for rework. The revenue of Job 61001 showed in Exhibit 8 is $9,600. The calculation shows the loss of Job 61001 is $4,132 , which probably should be caused by the large amount of rework cost.
Table 3: Stage two: Overhead costs assigned to Customer #16
Customer #16 Job Preparation Scanning Assembly Output Quality
Control Total
61601 7 26 60 8 9 110
61602 2 5 10 1 1 19
61603 2 5 11 2 1 21
Total hours 11 36 81 11 11 150
Allocation rate $...

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