Colorscope
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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, Colorscopes 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 companys 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
9600
61101
12000
61401
7800
61701
8000
61902
12000
Therefore to ascertain the profitability of each job, two stage job costing system (ABC) is used.
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.
2nd stage: The costs in various cost pools