Colorscope Inc

.Colorscope Inc. Case Solution

Activity Based Costing

Expenses

Rent

Others

Wages

Depreciation

Total Overhead

% of total

Remarks 1:

(Accounting Sys)

Preparation

2000.00

1333.33

8000.00

500.00

11833.33

5%

Scanning

2000.00

1333.33

32000.00

25000.00

60333.33

27%

Assembly

8000.00

5333.33

64000.00

10000.00

87333.33

39%

Output

4000.00

2666.67

10000.00

14000.00

30666.67

14%

QC

1000.00

666.67

11000.00

500.00

13166.67

6%

Idle Space

13000.00

8666.67

21666.67

10%

Total

30000.00

20000.00

125000.00

50000.00

225000.00

100%

A high percentage of 10% of total overheads is being wasted on the idle space on the work space. Also, ABC could be employed

by Colorscope Inc. in order to better analyze the problem. From Exhibit 10, it is clear that most of the hours spent in rework were

initiated by scanning stage of the operation it would be optimal, if they could somehow implement in-process QC system, so

that a lot of time could be saved which is being spent in the next three processes.

Total Material Exp

Total Hrs Recorded

75000.00

2440

House Error R/w

Hrs Rcrdd in R/w

3500.00

74

5%

3%

Remarks 2:

(Improvement in

Operations)

Less than 5% of the total material expense was incurred by the inhouse error rework which is already very low, thus making there

operations relatively efficient. Also, only 3% of the total hours recorded were used in rework, therefore Cha's initial analysis of

improving operational efficiency any further could cost more than it was saving, as they were already operating over a 95% Eff.

Remarks 3:

(Pricing Strategy)

On the Contrary if they were to charge customers for the hours spent on rework, initiated by the customers, it could result in a

10% increase in revenues, which is significantly higher & wouldn't cost a thing.