In order to reduce rework initiated by the customer Colorscope would need to increase customer interaction during the process. In order to maximize efficiency and profitability, a new costing method must be implemented immediately.
If the pricing method problem is not fixed, Colorscope will continue to see revenues decrease as more customers take their business elsewhere.
In order to keep costs under control Colorscope would need to also use an appropriate costing system such as ABC in order to have correct information on what a projects profitability would be before they actually complete the project. Criteria for an Effective Solution 1.
With its current approach, Colorscope incurs losses while at risk of losing prosperous relationships with customers. Customer scale, cost containment and efficiency are disregarded. Recommendation ColorScope needs to change its procedures in minimizing its cost. This will help them only work on accounts that will increase their net income.
Pros Working closer with the customers will increase value for customers while reducing rework costs for the company.
Value Does it add value for customers or the company? Will help them choose which projects to accept and which to reject. By attaining more accurate information, the pricing may be examined and adjusted to remain competitive with the smaller companies. For rework caused from employee errors they would need to implement different quality improvement techniques and possibly an incentive program for employees that have consistent high quality projects.
This can lead to inefficiencies as staff may put more work into one order while still incurring the same amount of cost as a less complex order. Bad pricing decisions can be made by not knowing how profitable each type of customer is.
The smaller ad agencies and print shops were taking away business from larger graphic art companies such as Colorscope. By attaining more accurate information, the pricing may be examined and adjusted to remain competitive with the smaller companies. Problem Identification The problem facing Colorscope is the current costing system; it lacks operational efficiency which would more accurately determine pricing for quality projects.
With costs minimized, demand will increase; production will increase causing idle time to lessen.Calculate profitability of job by allocating costs to that job using the cost driver rates that you estimated.
It might be useful to diagram this system before you start calculating the cost pools and cost driver rates. Colorscope Case Analysis Essay Sample.
Executive Summary The current costing method that is being used is completely misrepresenting customer profitability and costs of rework completed. Colorscope must alter its operation sequence in order to reduce idle time during assembly. Since the company is following a sequential processing of jobs, a high idle time for assembly means that scanning is taking a significant amount of time.
Colorscope Case Analysis Case of Colorscope Inc By Patrick Nedved Vanessa Osborne Danielle McCarthy Table of Contents Executive Summary The current costing method that is being used is completely misrepresenting customer profitability and costs of rework completed Colorscope exhibits a flawed pricing strategy, inaccurate financial reports.
Profit for each job is different according to the number of activities. The cost pool with greater number of activities assigned with the greater amount of overhead cost. Greater allocation of overhead cost results in loss of certain jobs like jobIt incurring revenue of 50, but allocation of greater overheads due to the greater number.
Colorscope, Inc. which was founded by Andrew Cha in operates mainly in the pre-press house or “color separator”. has built solid relationship with highly valuable print and pre-press buyers in the marketplace and really done a good job in the business processes and training methods.
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