Colorscope

INTRODUCTION

The profitability of Colorscope, Inc, a company dealing in graphic arts industry, is affected by rapid development of technologies such as desktop publishing and World Wide Web and the consolidation of several major players within the industry. Despite charging more or less the same per-page price for different customers, Colorscope's operations do not appear to be profitable.

ANALYSIS

The data given in the case has been analyzed as given below:

1. Different jobs undertaken by Colorscope place varying demand on company's resources. Company seems to have not charged its customers depending upon the demand on resources. For example : Job no. # 61001, 61101, 61401, 61701 and 61902 require different amount of time but they were not charged in the same proportion.

Table 1 Ð'- Revenue Vs time

JOB # Pages Total Hours Revenue ($)

61001 16 93 9600

61101 16 58 12000

61401 16 59 7800

61701 16 70 8000

61902 16 75 12000

Therefore to ascertain the profitability of each job, two stage job costing system (ABC) is used.

i. 1st stage: Resource costs are allocated to cost pool using appropriate resource drivers. Wages and depreciation cost are allocated on actual basis. Rent has been allocated on the basis of floor space (in sq. ft.) to various cost pools including idle space separately. Direct Wage Cost is used as resource driver for allocation of other overhead costs.

ii. 2nd stage: The costs in various cost pools

...