Various Cost Pools
Instructions:
Read the case: Activity-Based costing, Job Costing, Cost Allocation, and Cost systems, at Colorscope Inc, (attached).
Your team has been invited by the management of Colorscope, Inc to present an overview of the issues facing the company. You are required to write a report to the management of Colorscope, Inc, addressing the following issues. The word limit on this report is 1500 words +/- 10% allowance (excluding the words in tables and calculations).
1. Write an executive summary to highlight the competitive advantages of
Colorscope Inc, relative to its competitors, large advertising agencies and departmental stores, as listed in Exhibit 3. (10 marks)
2. Prepare a two stage cost system to show the profitability of different jobs.
To do this, you need to follow these steps (30 marks):
choose resource drivers to allocate the cost of resources to cot pools
Choose cost drivers to allocate the costs in various cost pools to jobs
Compute the cost drive rates
Calculate the profitability of each job (use an exhibit)
3. What you have done in requirement 2 above is a “full cost” analysis. This is in contrast to “direct-cost” analysis that ignores overhead costs. Discuss whether full cost has the right metric for job profitability and customer profitability. Also, discuss the assumptions that are made about the variability of overhead costs when a “full-cost” analysis is used (10 marks)
4. Discus the financial consequence of rework. Also, explain what options are available for Colorscope to manage reworks (30 marks)
5. Discuss your recommendation (s) to solve the cost-quality trade-off problem (10 marks)
6. Should Colorscope do anything about its incentive system? (10 marks)
Read the case: Activity-Based costing, Job Costing, Cost Allocation, and Cost systems, at Colorscope Inc, (attached).
Your team has been invited by the management of Colorscope, Inc to present an overview of the issues facing the company. You are required to write a report to the management of Colorscope, Inc, addressing the following issues. The word limit on this report is 1500 words +/- 10% allowance (excluding the words in tables and calculations).
1. Write an executive summary to highlight the competitive advantages of
Colorscope Inc, relative to its competitors, large advertising agencies and departmental stores, as listed in Exhibit 3. (10 marks)
2. Prepare a two stage cost system to show the profitability of different jobs.
To do this, you need to follow these steps (30 marks):
choose resource drivers to allocate the cost of resources to cot pools
Choose cost drivers to allocate the costs in various cost pools to jobs
Compute the cost drive rates
Calculate the profitability of each job (use an exhibit)
3. What you have done in requirement 2 above is a “full cost” analysis. This is in contrast to “direct-cost” analysis that ignores overhead costs. Discuss whether full cost has the right metric for job profitability and customer profitability. Also, discuss the assumptions that are made about the variability of overhead costs when a “full-cost” analysis is used (10 marks)
4. Discus the financial consequence of rework. Also, explain what options are available for Colorscope to manage reworks (30 marks)
5. Discuss your recommendation (s) to solve the cost-quality trade-off problem (10 marks)
6. Should Colorscope do anything about its incentive system? (10 marks)